RBI intervention helps rupee recover from lows

The worsening domestic macro-economic situation and the war tensions in the Middle East pulled down stock indices around 3.5 per cent while the rupee slid below 68 to the U.S. dollar on news that Standard & Poor’s is considering a downgrade of India’s credit rating which would position it only higher than Indonesia.

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) dipped by 651.47 points or 3.45 per cent to close at 18,234.66.

The worst affected were: banking stocks which lost 5.06 per cent, followed by consumer durables (4.61 per cent), realty (4.39 per cent), fast- moving consumer goods (3.89 per cent), oil & gas 3.63 per cent and capital goods (3.62 per cent). All sectoral indices closed in the negative territory.

“It was not surprising. Of late, volatility has increased substantially because of the passage of Food Bill in the Rajya Sabha, the risk of fiscal balance eroding badly, and, therefore, the threat of rating down grading also increasing,” said G. Chokkalingam, Chief Investment Officer, Centrum Wealth Management Ltd.

“Till next elections , we see continued volatility with a negative bias,” Mr. Chokkalingam added.

BSE mid-cap stocks lost 1.86 per cent, and small-cap 0.95 per cent.

Among the broad-based indices, BSE-100 closed down by 3.44 per cent, BSE-200 by 3.29 per cent and BSE-500 by 3.15 per cent.

On the National Stock Exchange (NSE), 50-share Nifty closed at 5341.45 with a loss of 209.30 points or 3.77 per cent.

“Everything started with a rumour in the market that U.S. has attacked Syria. The general mood of the market was nervous, and this destabilising news created panic. There are enough reasons, both internal and external, for the market nervousness, and this rumour was the last straw to break the camel’s back,” said Sudip Bandyopadhyay, Managing Director and CEO of Destimoney Securities

The RBI’s intervention, however, helped rupee to recover from 68 levels to close at 67.63/64 a dollar, compared to its previous close of 66.00/01 on Monday.

“With the new Governor for the RBI unveiling new measures the rupee would tend to recover to 65 levels in the short term, but as the US Federal Reserve rolls back its stimulus programme and slowdown in economic growth continues, the rupee once again would become volatile,” said Mr. Chokkalingam.

“Rupee dropped nearly 3 per cent against the U.S. dollar, as it touched a low of 68.15/16. A combination of sell-off in leading emerging market currencies and fresh jitters in the Middle East has been driven rupee lower,’’ said Anindya Banerjee, Currency Analyst, Kotak Securities. “Markets reversed the up-move seen over the last few trading sessions, and tumbled around 3.5 per cent today on further worsening of India’s macro situation post-weak Gross Domestic Product (GDP) and Purchasing Managers Index (PMI) numbers. This has resulted in sharp downward revisions in the current fiscal GDP growth across the street and raised chances of a sovereign downgrade,” said Tirthankar Patnaik, Director & Strategist-Institutional Research, Religare Capital Markets Ltd.

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