Sensex drops 171 points after rupee breaches 61

Indian markets on Monday closed weak after strong US jobs data fuelled concerns that the US Federal Reserve might taper off its stimulus programme sooner.

Rupee touching a fresh all-time low further dented sentiment as investors cut positions in rate-sensitive stocks amid fears that the central bank may not cut interest rates at its policy meeting later this month. Analysts said that the next trigger for the market could be the beginning of the June quarter result season.

The BSE Sensex ended the day at 19,324, down 171 points or 0.9% after having touched a day’s low of 19,185. The NSE Nifty closed at 5811, down 0.9% from its previous close.

The market declined by as much as 1.6% in the first hour of the trading session. However, buying activity by the domestic institutional investors and expectations from the impending result season helped the market to bounce back.

“There was some recovery seen as we are about to enter the result season. Market is expecting these numbers to be low at this point, but there is hope of a demand revival going forward,” said Amish Munshi, senior fund manager and head of research – equities at Tata Asset Management. Domestic institutional investors were sellers in the net at Rs 60 crore, while foreign investors were sellers at Rs 204 crore.

The rupee touched an all-time low of Rs 61.21 against the dollar on Monday but closed at Rs 60.6 per dollar. The rupee has seen a sharp fall in the past few months on fears that the US Fed’s easy monetary policy could see an early withdrawal leading to a liquidity squeeze in the system.

“Nervousness in the market remains because of the currency movement. It closed below Rs 61 (against the US dollar) and is seen retracing a bit. But unless there is stability, it would remain a worry,” said Rikesh Parikh, vice-president – equities at Motilal Oswal Financial Services.

The result season for the first quarter of the FY’14 will be kicked off by the Infosys results to be announced on Friday, July 12. Already, stocks in the IT sector have been seeing good buying interest in anticipation of the upcoming earnings announcement. While analysts are not expecting spectacular numbers, the dollar-revenue numbers are expected to be good for companies in this sector.

“Almost all IT stocks are good buys at this point. The near-ten% decline in the rupee has made investors turn to this sector albeit cautiously. They are buying selectively into this sector,” said Yogesh Nagaonkar, head of equity-institutional broking at Bonanaza Portfolio.

Interest-rate sensitive stocks led the decline as hopes of a rate-cut by the RBI were dashed by the unrelenting rupee decline. Stocks like HDFC, ICICI Bank and Axis were down by more than 2%. “The markets have reconciled to the fact that there will be no rate-cut in the next RBI policy review,” said Munshi.

However, export-oriented stocks bucked the trend with Wipro closing 1.5% up and Infosys gaining 0.7%.