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A day after Federal Reserve Chairman Ben S Bernanke announced another cut in the US' monthly bond-buying programme, Asian and emerging markets saw their stocks and currencies dropping on Thursday. Tracking a weakness in global financial markets, Indian markets also dipped, as investors were worried the Fed decision might lead to a curtailed flow of foreign equity in emerging markets, but the losses were limited and largely in line with other emerging markets.
This was in contrast with the period between May and September last year, when the rupee and Indian stocks fell sharper than their emerging market peers. At that time, India was considered one of the riskiest markets to invest in because of the country's high current account deficit and the inability of its government and central bank to control the currency's depreciation. The rupee had touched an all-time low of 68.85 on August 28.
The weak run for the Indian currency ended in early September, after Raghuram Rajan took charge as RBI governor and the government's curbs on gold imports started showing results. This time, fund managers said, the steps from the government and RBI, coupled with their repeated assurances to boost investor sentiment, augured well for the market. (NO MORE THE RISKIEST)
"Indian markets have remained relatively resilient across asset classes this time, because trade deficit has reduced considerably and policy makers, with improved fundamentals, have managed volatility better," said Vikram Kotak, chief investment officer (equity), Deutsche Asset Management.
The RBI move to strengthen its dollar reserves by opening up the foreign currency non-resident (B), or FCNR-B, window and interventions to halt the rupee's slide also worked favourably for India, said fund managers. Currency market participants said selling of dollars by RBI helped the rupee bounce back from its lows on Thursday.
The rupee - which on Thursday closed 0.27 per cent lower, at 62.58 a dollar, after falling to as low as 62.91 during intra-day trading - has appreciated 0.83 per cent against the dollar since Monday, when the markets started getting nervous about Fed's tapering. During this period, the Indonesian rupiah has gained 0.20 per cent and the Turkish lira 0.4 per cent, while the Thai baht has dropped 0.15 per cent and the Brazilian real has fallen 0.10 per cent.
On Thursday, the rupee's rebound had a rub-off on the domestic stocks, too, with benchmark indices halving their early losses - partly on covering of bearish bets ahead of the expiry of the January futures & options contracts.
The BSE Sensex, which fell to a low of 20,343.78 during intra-day trade, covered some loss before ending the day at 20,498.25, 0.72 per cent lower than its previous close. The NSE Nifty dropped 46.55 points (0.76 per cent) to close at 6,073.70 after touching a low of 6,027.25 during intra-day trade.
"Almost all investors favour the rupee among currencies of the so-called "fragile five" nations (Brazil, India, Indonesia, South Africa and Turkey). In this round of forex volatility, the rupee has, indeed, depreciated less than most BRICS and TIM (Thailand, Indonesia and Malaysia) countries," Bank of America Merrill Lynch Economist Indranil Sen Gupta said in a client note.
Earlier, the Fed announcement had triggered a sell-off in the US markets, too. On Thursday, Japan's Nikkei dropped 2.45 per cent, Hong Kong's Hang Seng 0.48 per cent and China's Shanghai SE Composite 0.82 per cent. Taiwanese and South Korean stock markets were closed for public holidays.
At home, foreign institutional investors (FIIs) net-sold shares worth Rs 430.20 on Thursday. Since Monday, these investors have been sellers to the tune of Rs 2,800 crore. So far in January, they have net-bought Rs 194-crore shares.
"We will see the rupee and Indian stocks recovering much faster than many other emerging markets because of improved fundamentals," said Kotak.
Moses Harding, group chief executive officer (liability and treasury management) & chief economist, Srei Infrastructure Finance expects the rupee to move in a range of 61-64 against the dollar.
