Saturday, 24 August 2013

Weekly Market Update - 19 Aug to 23 Aug 2013

The week saw the market seesawing from historic lows and then to recover to weekly high with assurances given by the RBI and the Govt. allaying the fears of investors. Rupee too saw some recovery from historic low of 65/$ during the last trading session ending the week at 63.20/$. Some highlights of the week gone by are :

  • Govt. notifies increase in FDI limits in various sectors.
  • Rupee falls for most of the week and hits a record low of 65/$. Recovers to 63.20/$ at the end of the week.
  • Govt. and RBI make announcements to allay fears of investors. Govt. says committed to curb fiscal deficit and CAD.
  • RBI moves to ease liquidity in the market.

The week saw the Sensex falling below the 18000 mark and the Nifty too breaching the 5400 mark on the back of the rupee hitting record low day after day to touch 65/$. To contain the situation from worsening further the FM held a meeting with the present governor of RBI and the governor-designate and came out with statements saying that the govt. was committed to curbing the fiscal deficit and CAD. Also, the FM did admit that the rupee had indeed crossed reasonable levels.

Close on the heels of the FM statement, the RBI allowed banks to retain 24.5% of govt. bonds as held-to-maturity bonds which will help the banks by not having to show losses due to spiking of 10yr bond yields. On 23rd August the RBI moved to buy bonds worth Rs.8000Cr, further leading to some liquidity easing.

These steps and assurances eventually led to some respite in the markets with the markets on the up move on the last two trading sessions. The sensex closed the week up by 206pts and Nifty rose by 63pts. The rupee too ended higher at 63.20/$.

With an intention to curb the CAD and the rising import bill, the Govt. issued a customs notification banning the import of flat-panel TVs as free baggage allowance. Also, the Govt. finally has notified the increase in the various FDI limits that were decided in the cabinet meeting last month. There are rumours that the Govt. is looking into entering currency swap agreements with various countries in order to stabilise the rupee.

It is obvious that the assurances given by the Govt. and the steps taken by the RBI in the past week have lifted the sentiment in the markets. With the parliament in session and more steps expected to be taken by the Govt. to ease the situation, it may finally give some impetus to the markets and lead to an up move. However, it is still very premature to expect anything and we envisage a wait and watch policy.