Weak rupee outlook weighs on Dalal Street

Key economic data, Infosys' results coming this week, but unlikely to affect trend; govt bond yields should see rise

A weak outlook for the rupee is likely to keep investors on edge in the week ahead.Stocks are expected to open weak on Monday, as the dollar's likely strength against the rupee due to better-than-expected US jobs data has raised the prospect of the US Federal Reserve rolling back its mega stimulus programme this year.

A slew of key domestic economic data and Infosys' earnings are due later in the week. However, the events are unlikely to give Dalal Street a break from the turbulence in the currency market. Rupee-dollar futures on the Dubai Gold & Commodities Exchange had touched 61 to a dollar on Friday, soon after the US jobs data was issued. On Friday, the rupee had closed at 60.24 a dollar, compared with the previous close of 60.13. During intra-day trades, it touched a high of 60.01 and a low of 60.59, a level very close to its all-time low of 60.77 last month.

"The market could open lower on Monday. The rupee might see a gap-down opening, owing to the strength in the dollar," said Alex Mathew, head of research at Geojit BNP Paribas Financial Services.

Traders will watch whether the weakness carries the National Stock Exchange's benchmark Nifty below its 200-day moving average of 5,825, a key support level. The Nifty closed at 5,867.90 on Friday.

Government bond yields are expected to rise further, tracking the rupee's weakness. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.50 per cent on Friday, compared with the previous close of 7.42 per cent. Dealers expect it to trade in the broad range of 7.55 to 7.65 per cent this week. "The yield might touch 7.60 per cent on Monday, as the rupee might touch a new all-time low," said a government securities dealer.

The government will also announce May industrial production data and June consumer price inflation data on the coming Friday. The trade data for June is also scheduled to be announced in the week ahead.

"The market is not expecting a huge revival in these numbers. Unless they are seen breaking their trend, it is not going to impact the market in a big way," said Sachchidanand Shukla, economist with Axis Capital.

"The correlation between the Indian market and global news developments is higher at this point. To that extent, the rupee-dollar movement will be of higher significance." Infosys' June quarter results on Friday will be more closely watched, as it will be the first results announcement after N R Narayana Murthy took over as executive chairman. Shares of other software exporters would also be in focus in the wake of the weaker rupee. "Since the rupee is a major factor for these firms, dollar-revenue growth will be looked at more keenly than the bottom line. On the whole, the market is not expecting anything spectacular," said said V Balasubramanian, vice- president and fund manager at IDBI Asset Management.

Stocks in pharmaceuticals are likely to see some gain. The Foreign Investment Promotion Board on Friday approved seven foreign direct investment proposals in Indian pharma companies. "It is not just the FDI approvals... these companies have been favourites among investors for some time," said Balasubramanian.

The Street also feels the Reserve Bank of India might not cut the repo rate further in the first-quarter review of monetary policy, due on July 30, due to the volatile rupee. This would dampen the bond market.