Weakness continued on the bourses in morning trade after the Reserve Bank of India (RBI) after market hours on Monday, 15 July 2013, announced measures to tighten liquidity in the banking system to prevent a sharp depreciation of the rupee against the dollar. While the rupee surged after the RBI measures, bond prices declined sharply. The barometer index, the S&P BSE Sensex was down 256.27 points or 1.28%, up 128.63 points from the day's low and off 33.26 points from the day's high. The market breadth, indicating the overall health of the market, was weak.
Index heavyweight and cigarette major ITC edged higher. Engineering and construction major L&T trimmed initial steep fall. Bank stocks slumped as RBI's latest measures to tighten liquidity in the banking system will make it costlier for banks and financial companies to raise short-term funds. Interest rate sensitive realty stocks also tumbled after the latest RBI measures.
Key benchmark indices dropped amid initial volatility as the yields on government bonds rose after the Reserve Bank of India (RBI) after market hours on Monday, 15 July 2013, announced a slew of measures to address exchange rate volatility. The BSE Sensex, fell below the psychological 20,000 mark. The 50-unit CNX Nifty fell below the psychological 6,000 mark. Weakness continued on the bourses in morning trade.
The Reserve Bank of India (RBI) after market hours on Monday, 15 July 2013, announced a slew of measures to address exchange rate volatility. The central bank said that the Marginal Standing Facility (MSF) rate is recalibrated with immediate effect to be 300 basis points above the policy repo rate under the Liquidity Adjustment Facility (LAF). Consequently, the MSF rate will now be 10.25%. Accordingly, the Bank Rate also stands adjusted to 10.25% with immediate effect. The overall allocation of funds under the LAF will be limited to 1% of the Net Demand and Time Liabilities (NDTL) of the banking system, reckoned as Rs 75000 crore for this purpose, the RBI said. The allocation to individual banks will be made in proportion to their bids, subject to the overall ceiling, it said. This change in LAF will come into effect from Wednesday, 17 July 2013.
The RBI also said that it will conduct Open Market Sales of Government of India Securities of Rs 12000 crore on Thursday, 18 July 2013. The RBI said it will continue to closely monitor the markets, the liquidity situation and the macroeconomic developments and will take such other measures as may be necessary, consistent with the growth-inflation dynamics and macroeconomic stability.
The RBI said the market perception of likely tapering of US auantitative easing has triggered outflows of portfolio investment, particularly from the debt segment. Consequently, the rupee has depreciated markedly in the last six weeks. Countries with large current account deficits, such as India, have been particularly affected despite their relatively promising economic fundamentals. The exchange rate pressure also evidences that the demand for foreign currency has increased vis-a-vis that of the rupee in part because of the improving domestic liquidity situation.
While the rupee surged after the RBI measures, bond prices fell. The rupee was hovering at 59.42 versus dollar, against Monday's close of 59.89/90. In the debt market, the yeild on the most traded 8.33 GS 2026 was hovering at 8.1465%, sharply higher than its close at 7.6656% on Monday. Bond yield and bond prices are inversely related.
Finance Minister P. Chidambaram today, 16 July 2013, said RBI's steps to curb rupee liquidity are aimed at quelling excessive speculation and volatility in the forex market and should not be read as a prelude to policy rate changes.
Foreign institutional investors (FIIs) sold shares worth a net Rs 227.26 crore on Monday, 15 July 2013, as per provisional data from the stock exchanges.
At 10:16 IST, the S&P BSE Sensex was down 256.27 points or 1.28% to 19,778.21. The index lost 384.90 points at the day's low of 19,649.58 in early trade, its lowest level since 11 July 2013. The index fell 223.01 points at the day's high of 19,811.47 in morning trade.
The CNX Nifty was down 85.80 points or 1.42% to 5,945. The index hit a low of 5,910.95 in intraday trade, its lowest level since 11 July 2013. The index hit a high of 5,954 in intraday trade.
The market breadth, indicating the overall health of the market, was weak. On BSE, 986 shares declined and 515 shares gained. A total of 95 shares were unchanged.
The total turnover on BSE amounted to Rs 540 crore by 10:20 IST compared to Rs 241 crore by 09:25 IST.
Among the 30-share Sensex pack, 23 stocks declined and rest of them gained.
Index heavyweight and cigarette major ITC rose 0.58% to Rs 354.10.
Engineering and construction major L&T fell 3.07% to Rs 975, with the stock recovering after sliding as much as 4.83% at intraday low of Rs 959.55.
Bank stocks slumped as RBI's latest measures to tighten liquidity in the banking system will make it costlier for banks and financial companies to raise short-term funds. ICICI Bank (down 5.88%), HDFC Bank (down 2.78%) and State Bank of India (down 4.49%) edged lower.
Interest rate sensitive realty also tumbled after the latest RBI measures to tighten liquidity in the banking system. DLF (down 4.54%), Indiabulls Real Estate (down 5.47%), HDIL (down 3.67%), Unitech (down 4.46%), Godrej Properties (down 2.35%), Oberoi Realty (down 4.09%) and Parsvnath Developers (down 0.32%) declined.
Asian stocks dropped on Tuesday, 16 July 2013, on concerns about an economic slowdown in China after data on Monday, 15 July 2013, showed China's GDP grew 7.5% in Q2 June 2013, lower than first quarter's 7.7% growth. Key benchmark indices in China, Hong Kong, South Korea, Taiwan and Singapore were down 0.07% to 0.68%. Key benchmark indices in Indonesia and Japan were up 0.32% to 0.51%.
Trading in US index futures indicated a flat opening of US stocks on Tuesday, 16 July 2013. US stocks climbed modestly on Monday, with the S&P 500 and the Dow industrials rising to record closing highs again, after Citigroup Inc. reported better-than-expected earnings.
Federal Reserve Chairman Ben Bernanke is due to deliver testimony on monetary policy in Washington on 17 and 18 July 2013. The minutes of the Fed's June meeting released on 10 July 2013 showed that while "several members judged that a reduction in asset purchases would likely soon be warranted," many want to see further improvement in the labor market before reducing the central bank's $85 billion-a-month quantitative easing program. The Fed currently buys $85 billion a month in government and mortgage bonds in an effort to keep interest rates low and stimulate economic growth. At a press conference following the June 18-19 meeting, Bernanke said the central bank could start reducing its $85 billion in monthly bond purchases later this year if the economy continues to improve in line with its forecasts.
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