Sensex recovers 115 points as regulators curb speculative trading in forex market

Stock indices recovered on Tuesday on the back of rupee regaining some value against the dollar as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) stepped in to curb speculation in the foreign exchange market.

The Bombay Stock Exchange (BSE) 30-share sensitive index, Sensex, gained 114.71 points to 19439.48. All sectoral indices ended in the positive territory. Consumer durables gained the most with 1.93 per cent followed by power (1.86 per cent), realty (1.65 per cent), capital goods (1.47 per cent), health care (1.44 per cent) and banks (1.26 per cent).

The rupee recovered on Tuesday from a record low witnessed on Monday after regulators restricted speculative trading in currency derivatives.

The rupee closed at 60.13/14 a dollar, after touching an intra-day high of 59.60. On Monday, it closed at 60.61 after recording a historical low of 61.21.

“Rupee has depreciated to the level which it has to be,” said Dinesh Thakkar, Chairman, Angel Broking. “This recovery may not be sustainable as we are expecting lower than expected corporate earnings in this quarter. The market will be range-bound for some time. However, the benefit of rupee depreciation in respect of increase in export will be visible after few quarters,” Mr. Thakkar added.

On the National Stock Exchange (NSE), the 50-share Nifty closed at 5859 with a gain of 47.45.

“We expect the markets to remain volatile and trade broadly in the 5600-6000 range. Although the rupee has been under pressure over the last few months, we believe that it should stabilise at the current levels due to sharp contraction in trade and current account deficit for the next few months,” said Ajay Bodke, Head-Investment Strategy & Advisory, Prabhudas Lilladher Pvt. Ltd.

Improving trade and current account deficits over the next few months primarily due to an expected sharp fall in gold imports, bountiful monsoons leading to cooling off of food and consumer inflation would act as positives to goad the RBI into considering lowering rates, Mr. Bodke felt.

However, he said, it would be weighed against sharp plunge in the rupee and its impact on rise in imported inflation and increase in fuel and fertilizer subsidies due to increase in under-recoveries. This would act as a constraint on RBI for lowering interest rates.

On balance, said Mr. Bodke, “We feel that the RBI would wait for the turbulence in the currency markets to subside and then move forward on lowering interest rates. The government’s massive drive in approving long-pending infrastructure projects should act as a catalyst in helping to revive investment cycle over the next couple of quarters.”

“SEBI has doubled the currency margin which is a welcome sign. However, even a 5.5 per cent margin is inadequate to curb excessive speculation,” said Kishor P. Ostwal, CMD, CNI Research Ltd.

Foreign institutional investors (FIIs) were net sellers on Monday as they sold shares worth Rs.204.46 crore.

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