Sensex down 61 pts; banks up as rupee, bond yields recover

Moneycontrol Bureau

The market fell for the third consecutive session, but closed off day’s low Tuesday on short covering in most beaten down stocks – banks and FMCG. The sharp recovery in rupee from its record low of 64.11 per dollar also helped the market recover.

The BSE Sensex crashed 336.54 points intraday (to touch day’s low of 17970.98) on top of 1060 points fall in previous two sessions, but it trimmed losses amid choppy trade to close at 18246.04, down 61.48 points.

The NSE Nifty that touched an intraday low of 5306.35 also managed to close above 5400 level at 5401.45, down 13.30 points from previous close.

The weakness in domestic currency remained the core reason for the downtrend in equity benchmarks and downgrade India as it will boost the country's oil import bill that will push up the current account deficit.

JP Morgan downgraded India to neutral from overweight this morning citing the rupee weakness as the primary reason for the downgrade. The brokerage house says India will continue to underperform unless rupee stabilises.

Aditya Narain of Citigroup cut his 2013-end Sensex target to 18,900 from 20,800.

"India is now swamped with uncertainty of monetary policy, economic and investment revival, earnings, flows and elections. That is smashing the market currently, but more fundamentally it pushes out any economic, earnings or valuation based revival," Narain explained.

On a strategy that investors could adopt to trade the Nifty going forward, Dipan Mehta Member BSE & NSE says, "The next two-to-three trading sessions are very important. If the market stabilises at these levels there may be some kind of bottom fishing taking place because values have corrected significantly and to a large extent, the damage to be bourses will be priced in. But the medium-and long-term view on the market still continues to remain quite uncertain."

Indian rupee touched an all-time low of 64.11 in early trade, but it recovered later on. It was down by 12 paise to end at record low of 63.25 as against previous day's close of 63.13 per dollar.

Dealers say RBI is likely to have sold dollars via PSU banks around 63.45 level, reports CNBC-TV18 quoting Reuters.

Arvind Narayanan, ED and head of Sales, Treasury & Markets, DBS Bank believes the rupee may see some respite in the near-term though the trend for the Indian currency remains bearish for now.

He says the main reason for rupee's sharp crash to 64 against the dollar can be attributed to the US bond yields, which are at a healthy 3 percent, signalling a recovery in that economy. "If you have strong data coming from the US, emerging markets and especially those with current account deficits like India would be in a spot of bother," he adds.

Even the bond yields recovered quite sharply; 7.16 percent 2023, 10-year bond yield fell 32 bps to 8.90 percent after hitting a 5-year high of 9.43 percent intraday.

Stocks Stats

The BSE Metal Index gained nearly 5 percent followed by Realty with 2.5 percent rise while Auto, Healthcare and IT lost 1-2 percent.

Tata Motors was the top loser on the Sensex, falling 4.66 percent and Mahindra & Mahindra lost more than 2 percent.

Sun Pharma also extended losses, declining 2.4 percent on top of previous day's 4 percent fall.

Technology stocks were under pressure on the back of profit booking. The BSE IT index surged 16.5 percent from the announcement of Infosys’ Q1 results whereas Sensex fell 7 percent. TCS today declined 2 percent.

However, country’s largest lenders State Bank of India and ICICI Bank gained more than 1.5 percent on short covering and recovery in bond yields.

Sterlite Industries shares zoomed 10 percent after finance ministry sources say the legal hurdle for government stake sale in Hindustan Zinc (gained 13 percent) and BALCO cleared. Sesa Goa surged 16 percent. Sterlite and Sesa Goa will be merged at the end of August. Sterlite holds 64.92 percent stake in Hindustan Zinc and government has 29.54 percent stake as of June 2013.

Among midcaps, Financial Technologies lost 7 percent ahead of first payout that will take place by 6 pm today.

Globally, European markets were under pressure amid continuing worries over likely reduction in USD 85 billion monthly bond buying by the US Federal Reserve. France's CAC and Germany's DAX declined one percent while Britain's FTSE lost 0.6 percent.

Asian markets closed lower. Hang Seng plunged 2.2 percent and Nikkei lost 2.6 percent. Straits Times and Kospi tumbled 1.5 percent each while Shanghai fell 0.6 percent.