Saturday, 17 August 2013

Weekly Market Update - 12 Aug to 16 Aug 2013

The markets did it again. The Sensex dived 769pts on Friday eroding investor wealth worth Rs. 2lk Cr in a single day. This was the Sensex’s biggest single day fall since 2009. As the Govt. went into damage control mode saying that things will calm down once the measures taken by RBI earlier in the week are interpreted correctly, investors felt the pain of the stock market fall all the more as the rupee touched record lows in intraday. This and more highlights of the week gone by :

  • IIP numbers show production contracted in Jun by 2.2%.
  • Retail inflation in July comes down to 9.64% from the earlier 9.87% in June.
  • WPI inflation at 5-month high of 5.79%
  • Import duty of gold hiked again to 10%.
  • RBI announces new steps to restrict forex flows and curb rupee slide. Spooks markets leading to one of the biggest falls of recent times.

The markets started the week with decent gains in three trading sessions. For a while it seemed that the damp picture painted by the IIP numbers and the WPI numbers are not affecting the markets. The announcements made by the FM stating that effort will be made to check the CAD at 3.7% the current fiscal with full and safe financing for the CAD lifted the mood of the market.

 The govt.’s announcement of hike in import duty of Gold to 10% and also hike in the duty of silver and platinum to the same tune appeared to bring some positive mood to the markets. The hike in duty of Gold even seemed justified following statistic reports showing that the demand for gold even after import curbs placed by govt., rose by 71% in Apr-Jun qtr compared to the same period last year.

Then came the announcements from the RBI. In order to stem the fall of rupee and to restrict forex flows RBI announced the following :

  • Individual overseas remittances under the Liberalised Remittances Scheme (LRS) restricted to $75,000/- from earlier $200,000/-
  • Investments in overseas property prohibited.
  • Investments overseas by companies restricted to 100% of net worth, down from earlier 400%. Navaratna companies exempt from this restriction.

The markets perceived this as a throwback to tougher capital control regime and reacted with the Sensex registering a fall of 769pts and Nifty registering a fall of 235pts. The BankNifty was affected by a fall of 575pts. The rupee too touched an intraday low of 62/$ before ending the session at 61.65/$.

The fall in the markets was assisted by weaker global cues, improving US jobs data and increase in US consumer prices signalling a recovery which may mean tapering of QE earlier than expected and fear of capital control in Indian economy though the Govt. sought to allay fears by saying that these are only short-term measures and not capital controls.

The week ahead looks dismal. Analysts feel that there may be a bounce back but that is not any indication of a recovery and investors should remain cautious. As clarity about the RBI announcements trickles down, the panic is bound to subside and there may be a rangebound movement of the markets.