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Tuesday 22 November 2011

Rupee, stocks tumble
Rupee, stocks tumble
Mumbai, Nov. 21: A mix of US debt, the Eurozone crisis and a depreciating rupee today dragged the Sensex down by 425 points to below 16000 at 15946.10.
The Indian currency crashed a nerve-wracking 81 paise against the dollar to 52.16, the lowest since March 2009. At the end of trade, the rupee was perilously close to its all-time intra-day low of 52.18.
Investors are morose as the problems in the Eurozone show no signs of receding. Ratings agency Moody’s today issued a warning on the credit rating of France.
Negative signs also came from the US. A “Super Committee’’ had not yet reached a solution on deficits; it is feared that if an acceptable decision was not reached, it might impact the US ratings.
Both Asian and European markets opened in the negative territory and closed in the red. In Asia, markets in China, Hong Kong, Japan, Singapore and South Korea lost up to 2.64 per cent.
Key indices in France, Germany and Britain slipped between 2 per cent and 2.6 per cent.
If these were not enough, there were other worries for the investor back here in India as the rupee continued to lose ground against the dollar.
“A depreciating rupee is not good news for the FIIs. It not only affects fresh flows but could also lead to outflows,’’ an analyst said.
He said a policy paralysis at the Centre, weak corporate earnings, high inflation and interest rates had led to investors staying away.
The Sensex opened weak at 16297.03 and was under pressure throughout the trading session. It breached the 16000-mark in late noon trade and settled at 15946.10, down 425.41 points or 2.60 per cent — the lowest close since October 5.
The 50-share Nifty of the NSE settled below the 4800-mark for the first time in a month to 4778.35, down 127.45 points, or 2.60 per cent.
All the 13 sectoral indices closed in the red - down between 3.46 per cent and 0.82 per cent - with metals, banking, realty, power, auto and refinery stocks taking the biggest hit. Besides, 28 of the 30 Sensex stocks lost ground.
Though analysts are of the view that equities may remain under pressure as the present developments do not incentivise buying, there are experts who disagree.
Speaking to The Telegraph, Phani Sekhar, fund manager at Angel Broking, said the outlook from here on looked positive as current fundamentals could not justify more downside.
However, Sekhar was quick to point out that this was subject to global accidents or unforeseen incidents not happening. The Sensex between 15500-16000 is a “good value zone’’ and that serious investors must roll up their sleeves and start investing, he said.
Currency route
The rupee came under intense pressure, pinned by the falling euro against the dollar and the share tumble that leads to lower dollar inflows.
Besides, there was a huge demand for the greenback from importers, particularly oil companies.
This mismatch between demand and supply of dollars saw the rupee opening weak at 51.44 and breaching the 52 mark.
Forex circles added that the rupee was also adversely affected by a comment from an official in the ministry of finance that the Reserve Bank of India had a “limited” ability to arrest the currency’s fall.
Meanwhile, the central bank is believed to have intervened in the markets by selling dollars.
However, its intervention was not meaningful enough to halt the slide. The Indian unit finally closed at 52.16, a steep fall of 1.58 per cent. In straight six sessions, it has tumbled 203 paise, or 4.05 per cent.
While some analysts are blaming the central bank for not intervening when the currency has been sliding, there are experts who aver that the fundamentals are not in favour of the rupee given the huge trade deficit.
There is now an expectation that the RBI should reduce the pressure on the rupee by selling dollars directly to oil companies. The RBI, however, is yet to respond to this suggestion.
“The rupee may find support at the key level of 52.18. However, a clear close below 52.18 could take the currency up to 54,’’ Mohan Shenoi, head of treasury at Kotak Mahindra Bank, told The Telegraph.

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