Weekly: Markets drop 1% as Re slumps despite RBI measures

Consumer Durables, Banks, Capital Goods and Oil & Gas stocks among the worst affected

Benchmark share indices extended losses for the fourth straight week to end over 1% down in the truncated week ended August 16 after fresh measures initiated by the central bank failed to contain the fall and talk of restrictions imposed on capital flows.

Further, encouraging economic data from the US raised worries that the US Fed would start scaling down its stimulus measures which could induce FIIs to pare their equity holdings in India also weighed on market sentiment.

The Bombay Stock Exchange's 30-share Sensex dropped 191 points or 1% to close at 18,598 and the National Stock Exchange's 50-share Nifty eased 58 points or 1% to end at 5,508.

Rupee & RBI Measures

The Reserve Bank of India (RBI) on Wednesday announced additional measures to support the Indian rupee by stemming foreign exchange outflows by Indian residents. On Friday, the plunged to lifetime low of 62.03 before recovering to close at a record low of 61.65 against the dollar.

Overseas direct investment (ODI) by Indian companies has been cut three-fourths, 100% from 400%, making it more difficult for local corporates to buy overseas assets. RBI reduced the limit for remittances made by Resident Individuals, under the Liberalised Remittance Scheme (LRS Scheme), to $75,000 from $200,000 per financial year.

RBI data shows that even after dollar sales to the extent of $2.25 billion in June, the rupee weakened by almost 5% during the month. The sale made by RBI in June was the highest in almost one-and-a-half years.

Meanwhile, the Government has clarified that it has no intention to impose capital controls and denied market rumours of a proposal to increase margin money on short-selling of shares.

Weak Macros

Exacerbating, all these concerns were the weak macro economic data released during the week.

Industrial production contracted for a second month in a row, by 2.2% in June, against a 2% decrease in the same month of 2012-13. It was dragged down by flat electricity generation and falls in mining and manufacturing output, official data showed. This does not augur well for larger gross domestic product growth.

Adding to this, driven by vegetables, wholesale price index-based inflation again moved out of the comfort zone of the Reserve Bank of India to stand at 5.79% in July against 4.86% in the previous month. The rate was 7.52% in July 2012. Fuel prices also showed a rise in inflation.

Sectors & Stocks

For the week, among the sectoral indices, Auto, Health Care, Metal and Realty managed to end in the green, with gains between 1-4%.

Teck and IT indices ended marginally negative, down 0.1% and 0.3% respectively.

Meanwhile, Consumer Durables, Bankex, Capital Goods and Oil & Gas indices slumped 2-5% during the week. FMCG and PSU indices too, saw a 0.9% cut each.

Gains in auto names like Tata Motors up 12%, also the top Sensex gainer, along with Hero MotoCorp and Baja Auto, which added 3.5-7%, helped the auto index remain in positive terrain.

Metal stocks regained their sheen during the week on the back of improved Chinese data. Tata Steel ended up 8% while NMDC, Jindal Steel, Hindalco and SAIL gained 2-7%.

Health Care space was in spotlight during the week as Wockhardt gained an impressive 21% along with sharp up moves in names like Aurobindo Pharma, Apollo Hospital and Sun Pharma which added 7-16%.

IT stocks saw some gains as Rupee depreciated through the week. Infosys saw a 0.5% gain while Wipro and HCL Tech ended up 2% each.  However, TCS slipped 3.5%. Both Infy and Wipro hit their 52-week highs in intra-day trades during the week.

Capital Goods shares tumbled on fears of slowdown in fresh order inflows amid sluggish economy.  BHEL which was the top Sensex loser lost 10% and L&T slipped 3% during the week.

From the Oil & Gas space, both Reliance Industries and ONGC ended in the red, losing 0.5-5%.

Banking shares witnessed a sell-off during the week as the weakening rupee dashed hopes of cut in key policy rates in the near-to-medium term. Among banking shares, Yes Bank, Canara Bank, PNB, Bank of Baroda and SBI declined 5.5-9%. Others like HDFC Bank, Axis Bank and ICICI Bank too saw a 2-3.5% cut.