Financial Daily from THE HINDU group of publications
Tuesday, May 04, 2004
Markets - Stock Markets
Money & Banking - Forex
Financial markets turn nervous Sensex drops 70 points, rupee loses 29 paise on political concerns
Mumbai , May 3
A DOMINO effect was felt across the currency, stock and debt markets on Monday as nervousness prevailed among traders. While the Indian rupee lost 29 paise against the US dollar from its previous close, the BSE Sensex lost 70 points and the Government securities' prices were volatile in a 40-paise range.
The rupee opened at Friday's closing level of 44.52/53, but soon followed the Sensex. According to dealers, FIIs selling in the equity market created nervousness leading to corporates frantically buying dollars for import payments. Banks were also buying greenbacks to cover their short positions. With uncertainty over the poll outcome still in the air, the Indian currency lost as much as 50 paise intra-day to touch the 45-mark in its value against the dollar as corporates and banks rushed to pick up greenbacks.
However, due to some dollar selling by the central bank the currency gained some ground to close at 44.81/84, 29 paise down from the previous close.
Mr Vikram Nanivadekar, Research Analyst, Credence Analytics, said, "Traditionally, there has been no strong connection between the foreign exchange markets and the equity markets, but in the past few months a connection seems to be developing. The nervousness in the equity markets today percolated into the forex markets."
"Volatilities in the market are due to the ongoing Lok Sabha elections. Within one to two months of a government coming into power, irrespective of whichever party forms it, market conditions should stabilise. The rupee should then be back on the rising plane with good inflows expected to continue," said Mr Moses Harding, Executive Vice-President - Treasury, IndusInd Bank.
The take on the rupee seems to be varying across the market, with a section of market players putting it as high as 42 by year-end, while others put it at 44.75.
Equity brokers said depressed international markets on Friday and offloading of positions ahead of the next phase of election (on May 5) led to heavy selling in most of the index stocks. After witnessing intra-day volatility of 140 points on Monday, the BSE Sensex closed down by 70 points (1.24 per cent) at 5584.99. On the NSE, S&P CNX Nifty was down by 29.40 points (1.64 per cent) at 1766.30.
According to brokers, most of the selling in today's trading session was by FIIs. However, there was buying at lower levels in most of the index stocks. Some players, including FIIs, are also said to be offloading their holdings ahead of the next phase of elections.
There has been concern over the slow-down of the Chinese economy and FIIs are selling in major commodities stocks that had seen sharp gains over the last several months. "In case the international prices of most of the commodities come down, it will impact the market sentiment towards commodities stocks," said a dealer with a domestic broking firm. But brokers said the China factor is likely to be short lived as the Indian economy is growing at a fast pace.
In the domestic debt markets, volumes were thin at Rs 3,800 crore and sentiment was dull due to the volatility in the foreign exchange markets. In the actively traded, segment prices moved in a 40-paise band. The 8.07 per cent 2017 paper touched a high of 125 and a low of 124.60 after hovering at Rs 124.85 for long periods. The 10-year bond ended the day at 5.12 per cent.
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