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The rupee’s direction and trends in global markets may determine how Indian stocks would behave in the week ahead. The recent decline in the rupee against the dollar is weighing on the stock market as a weaker currency restricts the government’s ability to fight inflation and erodes the value of foreign institutions’ domestic share holdings.
Fund managers and brokers said foreign institutional investors (FIIs) may pull money out of Indian stocks in the near term if the rupee declines further.
“Rupee is still a concern for the markets. The fall below 56-levels looks likely at this point with the dollar continuously gaining against other currencies,” said V. Balasubramanian, Vice President & Fund Manager, IDBI Asset Management.
The dollar has strengthened against the rupee and other currencies in recent weeks amid growing buzz that the US Federal Reserve may tighten its monetary policy. The US central bank’s bond buying programme, known as quantitative easing (QE) 3, aimed at keeping its banking system awash with liquidity to revive the economy, has resulted in some of the money flowing into emerging market equities and bonds.
But, such concerns have not slowed down foreign portfolio flows into Indian equities yet. In May, FIIs net bought shares worth Rs 21,175 crore. So far this year, these investors have net bought shares worth Rs 81,714 crore.
In the near term, market participants would turn to global markets for cues, said Gautam Trivedi, Managing Director & Head of Equities – India, Religare Capital Markets.
“The GDP number was a negative for the market but not unexpected. So from what we saw on Friday it is clear that profit-booking is still happening,” he said
Technical analysts expect the Nifty to be range-bound and trade above the 5,900 levels. However, they believe that a further depreciation in the rupee in the week ahead could see the index plummeting further.
“We think 5,930 to be a good support level and we expect it to hold on. But if the Nifty breaches that level, then the support-levels would be revised down to 5,700-levels,” said Shubham Agarwal, VP Sr. Analyst Technical Equities, Motilal Oswal Securities.
