Wobbly rupee keeps Dalal street nervous

The fears of a US attack on Syria, which have driven up crude oil prices, would also keep investors on the edge in week ahead

The near-term prospects of the stock market remain uncertain, as investors and traders are hesitant to conclude whether the worst for the rupee is over after the late bounce. The fears of a US attack on Syria, which have driven up crude oil prices, would also keep investors on the edge in the week ahead.

“How markets move now will be a function of the rupee. Until it finds a durable bottom, markets will continue to be volatile,” said Varun Goel, head of portfolio management services, Karvy Stock Broking.

Brokers said the markets could open higher, despite the government raising diesel prices only by 50 paise a litre against the expectations of Rs 3-5 a litre.

“Frankly, the rise in diesel prices is disappointing. The most conservative Street expectation was a reduction of Rs 3 in the subsidy of Rs 6. But markets will still take this as a positive move because this is one bit of good news that has come amidst a lot of negative news. So, to that extent, markets will react positively on Monday morning,” said Sandeep Singal, co-head of institutional equity, Emkay Global Financial Services.

Last week, equity markets largely tracked the rupee’s movement. The BSE Sensex on Friday ended the week at 18,619 and the NSE Nifty closed at 5,471, both up 1.2 per cent from their respective previous close. The rupee, which saw a sharp decline of about 3.7 per cent last week, ended at Rs 65.71 against the dollar. Investors and traders will closely track comments by Raghuram Rajan, who will take over as the Reserve Bank of India (RBI)’s new governor from September 5.

“The negative news flows have to slow down, as the mood in the market is already very worrisome and negative. Even small negative news is enough to make investment managers worry,” said Singal.

Investors are worried that the rising crude oil prices on concerns of a possible US attack on Syria would widen India’s fiscal deficit. Crude oil prices have already touched $115 a barrel.

“There is a probability of a short-term rise in  crude oil prices, depending on the dynamics of the war scenario. However, we believe the hostilities will not last long,” said Tirthankar Patnaik, director, strategist and chief economist with Religare Capital Markets.

Analysts said the lower-than-expected gross domestic product (GDP) data is unlikely to affect the market unless the rupee declined. India’s GDP expanded by 4.4 per cent in the first quarter of the current financial year against the market’s expectations of 4.7 per cent.

“All the negative news on that front has already been factored in. Most of the hangovers are out and markets would remain at current levels, unless there is a further slide in the rupee,” said Sarabjit Kaur Nangra, vice-president-research, Angel Broking.

The rupee rebounded late last week after RBI opened a special window for oil marketing companies to buy dollars for their imports.  Last week, foreign institutional investors net sold to the tune of Rs 3,428 crore and domestic institutions bought shares worth Rs 2,052 crore.

Information technology and pharma firms might continue to firm up because of the weaker rupee. Fund managers hope to see a temporary turnaround in banking stocks which are at attractive valuations.