Finally, a flat close after a very trying week for Indian equities. The barometer of the economy - stock markets, managed a pullback largely on account of the rupee recovering and global strength.
The Sensex fell 4.48 points, to close at 16,217.82 while the Nifty touched an intraday low of 4,889.35, before managing to close above the 4,900 level. The broader markets outperformed the BSE and NSE benchmarks, rising 0.5%.
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Chelsea Saldanha.
Sudarshan Sukhani of s2analytics.com remains in firm that investors should hold long positions. He says, “We are within striking distance of 4,950 which has acted as resistance for the last 10-12 days. If that breaks, it’s reasonable to expect the Nifty to gives us a 100 point move. So, at this point, Sukhani remains long on the Nifty and on the Bank Nifty too.
The broader markets picked up in afternoon trade as the market breadth remained positive. The Nifty enjoyed a rangebound session after a tumultuous week as traders took cues from European markets, which rose on the back of encouraging confidence data from Germany.
Rumours of the possibility of a partial rollback in the petrol price hike and hopes of a diesel price increase saw investors waiting patiently on the sidelines as well.
The Rupee RecoversAt one point the rupee went down to 55.20, so today the INR has not done too badly. The euro gained against the dollar while exporters sold the greenback, helping the rupee's cause.
K Ramchandran, president, investment advisory and equity research, YES Bank says that in the short-term, these emergency measures will definitely help to somewhat give support to the rupee but in the longer-term the strength of the rupee will be largely dependent upon how quickly we are able to correct our trade and current account deficits. “So obviously our exports need to grow faster than imports as it is a fundamental and structural issue,” he adds.
To deal with the mismatch in supply and demand, the RBI has been intervening frequently in the currency market this week. Another positive influence could be the recent increase in the price of petrol by Rs 7.5 per litre.
There are a number of factors that have resulted in a pullback in the dollar-rupee to lower levels, says Rajeev Mahrotri, head of trading, global markets group, IndusInd Bank. “The past depreciation of the rupee is probably exerting its influence in slowly decreasing the current account deficit. Gold imports would also have slowed substantially in the last couple of quarters.”
According to a Reuters report, the RBI has been selling dollars aggressively in the spot market to rein in the falling rupee, but the swaps help it defer the impact of that selling on FX reserves to a later date. Reserves stood at USD 291.80 billion as of April.
The report further said that the central bank has been easing rupee liquidity conditions via bond purchases, both through open market operations (OMOs) and suspected bond purchases in the secondary markets.
So some stability in the Indian currency is definitely welcome but it is tough to say when and at what level this can happen. For now, it looks like the rupee movement has been overdone and sooner than later we should see it appreciate a bit from current levels.
Challenging Times AheadIndia right now has two huge elephants in its backyard - One is the current account and fiscal deficits and the other is the weak investment, both of which are feeding off each other.
The GDP scare today intensified even more after CLSA and Morgan Stanley revised their forecast for India lower to 6.3%. Goldman Sachs has also downgraded its estimates to 6.6%. Bank of America Merrill Lynch's estimates too have been revised down to 6.5%. CLSA told CNBC-TV18 that it doesn’t expect any improvement in the June quarter GDP reading.
The government’s Economic Survey sees FY13 GDP at 7.6%, while the finance ministry has been headstrong in stating that the government is hoping for a 7.5% growth. The RBI too has said it expects FY13 GDP to grow by 7.3%.
India’s macro woes continue to remain largely domestic in nature, making the ‘India Shining’ story appear a wasted opportunity for foreign investors. Coalition politics plays spoilsport as well as policymakers sidestep firm decisions on issues like FDI in aviation and retail.
To address this itch, Ramchandran says we have to see how quickly we can make India an attractive destination for capital flows. For FIIs to start bringing in money into India there is a need for some kind of stability in the rupee in the very short-term because the long-term story of India still remains pretty strong in spite of short-term worries and constraints.
In the short-term, India does have domestic challenges. Therefore, he advises investors to stick to asset allocation. When you invest in equities, you cannot really invest for six-nine months, particularly in an economy like India. You will have to invest for two-three years and be patient.
“One also has to have a good mix of different investment themes. So, balance your portfolio but don’t get to aggressive right now and throw caution to the wind,” cautions Ramchandran.
Chelsea Saldanha
chelsea.saldanha@network18online.com 
