As rupee stoops to 55, experts discuss Nifty's movement now

‘Only buy something that you'd be perfectly happy to hold if the market shut down for ten years’

~Warren Buffett

This is a time of widespread economic turmoil, not just for developed markets, but for Asian equities as well. In the last month-and-half, our market has gone from a somber tone to just plain ugly. With a dangerously falling rupee, the larger theme that investors are now asking is where is the growth going to come from for us to tackle our domestic quandaries?

Investors are already nervous about slowing growth in China and the US. While analysts and traders differ on whether this is the new normal that global markets will have to live with for the rest of FY13, questions are now arising over how long this depressive growth in both financial and economic markets will continue.

Falling Rupee Hits Record Low

The Indian currency has breached the 55 to the dollar mark. A Reuters report states it was due to renewed demand for the greenback from banks and importers. The rupee was moving towards its all-time low of 54.89 a dollar at the time of closing of Indian equities. It however continued its downward trend after the market closed, making it the fourth session in which the currency touched a lifetime low.

Commenting on the bearish trend of the rupee, Rajeev Mahrotri, head of trading, global markets group, IndusInd Bank says we will possibly see 56 and later on even 58 to the dollar. With Indian fundamentals correcting it will take time to play out. Imports will slowdown only with a lag and an array of event risks are also lined up such as the Greece elections and the much later US Presidential elections.

With the dollar strengthening, chances of the rupee weakening are much higher now which could lead to it touching 60 to the dollar, as what was forewarned by a Citigroup report on India recently.

Meanwhile, Morgan Stanley cut India's 2012 economic growth forecast to 6.3% from its prior 6.9% and its 2013 forecast to 6.8% from 7.5%. ‘Bad’ growth mix - a combination of high national deficit and an expansionary policy of supporting consumption while private investment slows - has reached its limits, Morgan Stanley said.

Market Sets Sights on Euro Zone Outcome

After the first initial rally that was seen in India in January and February, Mark Mobius, Executive Chairman, Templeton Emerging Markets Group, Franklin Templeton Investments tells CNBC-TV18 still finds emerging markets including India looking pretty good because of our stronger foreign exchange position, our lower debt to GDP levels and high growth levels. “So, in some ways emerging markets are quickly becoming a sort of refuge,” says Mobius.

The Sensex and Nifty had a choppy session today, closing flat after shedding all gains in late trade due to the sharp fall in the rupee. The BSE benchmark shed more than 100 points before closing at 16,183.26, up 30.51 points while the NSE benchmark managed to gain 14.60 points to close at 4,906.05.

The upmove in our market during the day has been a very quite one with very little volatility. Sudarshan Sukhani of s2analytics.com now assumes we will get close to 5,000 which is when profits should be taken in the 5,000 to 5,050 range. He finds it difficult to say whether we will inch upwards towards 5,000 or simply have a big up day in the next few days. “It’s also possible that this may finally act as a resistance although that’s a very low probability for me. I assume we will go up but profit taking should be done only beyond 5,000 and not before,” he adds.

Ambareesh Baliga, COO of Way2Wealth says people don’t expect the market to rally unless the rupee goes to 50.51 levels. “I think maximum we could see 5000-5050-5100 levels at best and then from there we could retract,” he says, adding that all eyes have to be on to what sort of action the government takes once the Parliament session concludes tomorrow.

Game Over for Greece?

The way global events played out over the weekend, it appears to be a foregone conclusion now that Greece almost has its bags packed and ready to exit the euro zone. This is despite the fact that world leaders are calling for Greece to stay in the EU and for Europe to balance austerity with growth. The mass exodus of euro deposits being withdrawn from Greek banks is expected to accelerate going ahead as markets begin to asses the risk of keeping money in these banks.

The debt-laden nation is heading to the polls on June 17. If anything, now is the time for European policymakers to act before the election results or watch Greece walking out of the 17-bloc euro group. Analysts say it will be important for European Union leaders to ensure that Greece remains in the region as the country's exit will expose larger debt-laden nations mainly Spain to market attacks.

A JPMorgan report says the country’s eventual exit from the euro zone will add to the risk of a massive contagion in the region which could be a near-term negative for equity markets.

Chelsea Saldanha
chelsea.saldanha@network18online.com