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Markets dance to FDI tune but Rexit makes rupee weak on the knees

By PTI
20 June, 2016

Stocks and rupee today opened with an early morning plunge but equities bounced back to score a 241-point rally as Rexit jitters got blunted by a new wave of FDI reforms, hectic buying by institutions, talking-up by influential market men and easing Brexit worries.

Rupee, however, could not be saved of its morning blues entirely and ended 23 paise down at Rs 67.31 against the US dollar, although intervention by RBI in the forex markets helped its partly recoup the losses. The Indian currency had plunged almost one per cent or 61 paise to a low of Rs 67.69.

RBI bought government’s securities worth Rs 10,000 crore through OMO purchase auction held today, while the total amount offered by participants stood at Rs 45,922 crore.

There have been concerns about a sharp plunge in stock and rupee valuations after Rajan made a surprise announcement over weekend that he would not take a second term at RBI.

Stock market benchmark Sensex plunged to as low as 26,438 points in pre-open trade between 0900-0915 hours, down nearly 200 points from its previous close, but early morning buying orders helped limit the opening loss at 178 points.

After touching a low of 26,447.88 in opening trade, the Sensex recovered sharply to scale an intra-day high of 26,885.49 points before finishing at 26,866.92, showing a gain of 241.01 points or 0.91 per cent.

Nifty closed 68.30 points or 0.84 per cent up at 8,238.50.

Marketmen said some big domestic institutions could have been pressed into buying to check the losses, as turnover was relatively higher in early morning trades for a Monday.

Seeking to allay concerns, government sources said a successor would be announced well in advance, preferably by July-end, to replace Rajan after he demits office on September 4 to help smoothen the transition.

Several prominent marketmen, including ace investor Rakesh Jhunjhunwala, said in their commentaries before and during the trading hours that Rajan’s exit should not be a major worry for the markets as right policies are in place.

However, a big soothing voice came from Fitch which sought to allay concerns of any impact on India’s sovereign ratings due to Rajan’s exit, saying “policies are more important than personalities” on this front.

Moreover, in sweeping reforms, the government today decided to ease FDI norms in civil aviation, single-brand retail, defence and pharma by permitting more investments under automatic route — a decision which some people said could have been advanced to counter Rexit jitters in markets.

Economists at Citigroup said markets would wait for more clarity on the new RBI Governor, while several analysts said that multiple positive factors helped allay the worries.

In overseas trade, oil prices extended gains in Asia on the back of a weaker US dollar and easing fears of UK’s exit from the European Union.

Overseas European stocks rose after polls over the weekend showed resurgence in support for the UK staying in the EU ahead of the June 23 Brexit referendum. Key indices like France, Germany and UK rose by 2.59 per cent to 3.10 per cent.

Earlier, Asian stocks perked up with Japan’s Nikkei gain gaining 2.34 per cent, Hong Kong’s Hang Seng up 1.69 per cent and Shanghai Composite Index 0.13 per cent in the green.

Back home, aviation stocks were in the limelight after the Centre’s decision to allow 100 per cent FDI in civil aviation.

Stocks of Spicejet, Jet Airways and InterGlobe surged by up to 7.36 per cent.

Shares of companies involved in manufacturing of defence equipments such as Reliance Defence, BEL and Bharat Forge also witnessed strong rally, rising by up to 7.39 per cent.

Overall, out of the 30-share Sensex pack, 18 scrips rose.

Major gainers were, Tata Motors (3.98 pc), Tata Steel (3.27 pc), Bharti Airtel (2.60 pc), Infosys (2.57 pc), TCS (2.00 pc), L&T (1.86 pc), Reliance (1.78 pc), Dr Reddy’s (1.75 pc), ONGC (1.52 pc), Bajaj Auto (1.36 pc) and NTPC (1.15 pc).

However, Asian Paints fell by 0.60 per cent followed by Coal India (0.46 pc) and Axis Bank (0.39 pc).

Among BSE sectoral and industry indices, IT rose by 2.00 per cent, telecom (1.98 pc), teck (1.97 pc), industrials (1.50 pc), auto (1.49 pc), metal (1.40 pc), capital goods (1.23 pc) and realty (1.05 pc).

While, only FMCG shares declined by 0.06 per cent.

The market breadth turned positive as 1,385 stocks ended higher, 1,193 declined, while 205 ruled unchanged.

The total turnover fell to around Rs 2,702.41 crore from from Rs 2,830.49 crore on Friday.

Rupee drops

The rupee today ended lower by 23 paise to close at an over two-week low of 67.31 against the US currency on heavy bouts of dollar demand amid uncertainty in the wake of RBI Governor Raghuram Rajan’s decision against pursuing a second stint.

Rajan, whose tenure as the RBI chief will end on September 4, had on last Saturday said he will not be seeking an extension as the governor.

The home currency opened sharply lower at 67.65 per dollar as against the last weekend’s level of 67.08 at the Interbank Foreign Exchange (Forex) Market and dropped further to one-month low of 67.70 on initial heavy dollar demand.

However, it recovered afterwards to 67.28 in view of a sharp recovery in equity market on hopes of robust foreign capital inflows following government’s announcement of a further liberation of foreign direct investment coupled with sharp rise in global market before ending at 2-week low of 67.31 per dollar, still showing a loss of 23 paise or 0.34 per cent.

The domestic currency had ended higher by 13 paise or 0.19 per cent on last Friday.

The local currency hovered in a range of 67.28 and 67.70 per dollar during the day.

Meanwhile, the dollar index was down by 0.48 per cent at against the basket of six global currencies in the late afternoon trade.

The RBI fixed the reference rate for the dollar at 67.4087 and euro at 76.5358.

In cross-currency trades, the rupee fell further against the pound sterling to close at 98.49 from 95.86 on last Friday and also moved down against the euro to 76.25 from 75.53.

However, the domestic currency inched up further against the Japanese yen to 64.37 per 100 yens from 64.38.

In the global market, the pound moved sharply higher today after the latest Brexit polls indicated the “remain” campaign has regained lost ground ahead of Thursday’s key referendum.

Oil prices started the week higher today with Brent crude trading above USD 50 a barrel, as global stock markets soared on growing expectations that the UK was more likely to remain in the European Union.

Brent crude, the global oil benchmark, rose 2.1 per cent to USD 50.20 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1.8 per cent at USD 48.84 a barrel.

In forward market, premium for dollar eased further on sustained receivings from exporters.

The benchmark 6-month premium for November moved down to 189-191 paise from the last weeekend’s level of 191-193 paise and far forward May 2017 contract eased to 384-386 paise from 386-388 paise.

Meanwhile, the benchmark Sensex ended higher by 241.01 points or 0.91 per cent.

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Markets dance to FDI tune but Rexit makes rupee weak on the knees

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