NIFTY FUT SEGMENT WAS DOWN FROM 1.40 TO 2.40. Is it a technical snag or something else, when everything looked as buying opportunity or bounceback, but it didnot do so.
Sensex, Nifty fall on inflation shocker; RIL near 52-week low
The BSE Sensex and NSE Nifty, which traded up 0.5 per cent in the early morning trade, slumped as soon as the inflation data was released. The street was betting on a low inflation for April 2012. A spike in global risk aversion too dented sentiment.
The BSE Sensex closed down 0.47 per cent or 77 points to 16,215.84. The NSE Nifty slipped below 4900-level shedding 21 points or 0.43 per cent. It ended the day at 4,907.80.
India’s monthly inflation, represented by the wholesale price index or WPI index, stood at 7.2 per cent against 6.9 per cent in March 2012. This was expected to be 6.7 per cent by the street.
Food articles inflation was at 10.5 per cent. The higher-than-expected inflation reduced the prospects of further interest rate cuts.
There was some issue with NSE's Nifty Futures index which stopped trading in afternoon. An NSE spokeswoman had earlier said trades were continuing to come through, but that the confirmation of orders was not allowing the execution of those orders. Trading later resumed as normal.
BIG LOSERS
Auto (-1 per cent), banking (-1.64 per cent) and consumer durable (0.26 per cent) shares, which rose ahead of the announcement of the inflation data, gave up gains.
The BSE’s Bankex slipped into negative territory as bank shares like HDFC Bank, Bank of Baroda and State Bank of India fell close to 1 per cent.
Shares of India's three largest private sector banks -- ICICI Bank (-1.70 per cent), HDFC Bank (-2.02 per cent) and Axis Bank (-0.69 per cent) fell after ratings agency Moody’s downgraded their credit ratings. Moody’s also downgraded the foreign currency insurance financial strength of Life Insurance Corporation to Baa3.
Market heavyweight Reliance Industries also traded close to its 52-week low at Rs 681 (-2.32 per cent) as investors are concerned about declining profit growth in core businesses of refining and petrochemicals.
DLF (-2.64 per cent), Tata Motors (-2.42 per cent) and Bharat Heavy Electricals (-1.99 per cent) were the other big losers on the BSE Sensex index.
TOP GAINERS
Meanwhile, shares of Larsen & Toubro rose 1.86 per cent after the company’s Q4 results beat Street expectations. L&T, the biggest Indian engineering and construction company, reported a net profit of Rs 1,920 crore over net sales of Rs 18,481 crore for the quarter ended March 2012.
Bajaj Auto (1.79 per cent), Tata Power Company (1.41 per cent), Infosys (1.13 per cent) and Maruti Suzuki India (1.05 per cent) were the other top gainers on BSE Sensex index.
RUPEE CONCERNS
Rupee depreciated further on Monday. At 3:03 p.m., it touched 53.78 against dollar.
The weakness in the value of the rupee worried traders but the inflation data was expected to bring some relief to the street. The Reserve Bank of India will monitor this closely to assess the impact on the economy. RBI will not be able to cut interest rates to stimulate growth despite a sharp slump of over 3.5 per cent in manufacturing. Low inflation was necessary for RBI to consider any monetary policy action to stimulate growth. However, with inflation rising, it is unlikely to take any such step in a hurry.
Media reports suggested that the state-owned oil marketing companies were looking to hike petrol prices by Rs 8 per litre. However, the inflationary pressure is exerted by diesel prices if the government hikes prices of diesel.
Oil prices eased to a three-month low in international markets on Monday.
Why the rupee is among the weakest currencies
The Indian rupee is one of the weakest currencies in Asia and among emerging markets. This is largely because India is a net importer of goods and services and hence has a high current account deficit. In comparison, other Asian economies like Singapore, South Korea, Taiwan and Malaysia are net exporters and maintain a current account surplus. A current account deficit occurs when a country imports more goods and services than exports.
Here are pointers that could help you comprehend the trend:
• India imports more than exports: India's exports fell an annual 5.7 per cent to $28.7 billion in March 2012 while imports rose 24.3 per cent to $42.6 billion, government data showed on Tuesday. The trade deficit was at $13.9 billion. Oil imports rose 32.5 per cent to $15.8 billion. High imports mean more demand for foreign money. This puts pressure on the Indian rupee. Countries with a current accounts surplus have strong currencies.
• Foreign investment down: Foreign investments into Indian stocks have swung into negative with $545 million outflow in April 2012 from a robust $7.1 billion net inflow in February 2012. Foreign direct investments fell to $2.2 billion in February from $5.7 billion in May 2011. Foreign money inflows are needed to prop up the rupee. The onus is on the government to make India an attractive investment destination.
• Forex reserves falling: The country's foreign exchange cushion is dwindling. Credit rating agency, S&P, figures India has reserves to cover about six months of current account payments, down from over eight months in 2008 and 2009. India's foreign reserves fell to around $295 billion on April 20 from about $321 billion on September 2, after the RBI sold dollars to prop up the currency.
• Scope for RBI intervention limited: “We do not expect the RBI to intervene aggressively but continue with its intervention strategy of only stepping in to curb excessive depreciation,” said HDFC Bank in a recent outlook note on the rupee. Central banks intervene in the forex markets to either prop up the local currency by selling foreign exchange or push it down by buying foreign exchange. RBI has already injected close to $ 20bn in the forex markets to prop up the rupee. While the central bank is buying rupees on one hand, it has to buy government bonds and release rupees in the banking system so that banks can lend more to stimulate growth. This nearly cancels the effect of rupee buying by RBI in the forex market.
• Rupee needs global banks to adopt easy money policy: Global central banks are not cutting interest rates or releasing money into the financial system like the so called ‘Quantitative Easing’ in US. When the US Federal Reserve Bank releases more money in the system, the risk appetite of global investors goes up. However, so far, there are no such signs. Analysts say that the reversal in global risk appetite should ensure that the rupee should move up to as high as Rs 50 to the US dollar.
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