Will rupee retire at 60/$? Experts debate Nifty's next move

Considering the fact that the rupee has done another 'falling knife' act -depreciating to a new low at 56 to the dollar, what’s surprising is it hasn’t dragged our market down under as well.

Today’s market performance was nothing to write home about, which saw stocks like Bharti Airtel, Kotak Mahindra, Sesa Goa and Tata Power take a beating on the Nifty.

The Sensex closed at 15,948.10, down 78.31 points led by 20 components while the Nifty fell 24.85 points to 4,835.65.

If the risk adjusted return is something you have to look at when the market is buoyant then that is something which is difficult for investors. But Amit Dalal, executive director, Tata Investment Corporation Ltd says if you are not going to take a risk when markets are down because of a certain situation, it is always going to be a momentum driven investment call that you take.

He believes investors may have some time as there is some more pain left but it’s always better to take a call contrary to the market rather than with the market.

Resistance at 4,800

Investors and market analysts are wondering how much more damage can the rupee possibly do to our equities. The fact that 4,800 did not break today is frankly surprising. What is uncertain is whether this is an attempt to keep the Nifty above 4,800 before the F&O expiry next week.

The rupee declined over 1% to hit a record low of 56.18 to the dollar and there was a more than 2% decline in European markets. The euro, commodities and commodity-linked currencies were all under pressure whereas safe-haven demand pushed the dollar index to 81.830. The euro hit a 21-month low against dollar too.

Given all of this, one would have expected 4,800 to break today but it continues to remain resilient. 

And yet, there is no evident volatility in the system. With the way things have panned out, is 4,820 on the Nifty expected to be construed as a market which is weak or actually resilient under the circumstances?

Market expert Sudarshan Sukhani of s2analytics.com is still waiting for the 4,800 mark to be breached. With the market in a choppy environment, the market is telling investors that 4,800 is holding. He advises market players to let it break down and if it closes below it then we must take short positions.

Rupee in Government or RBI’s Court?

This freefall in the rupee has forex-treasury consultant AV Rajwade declining to predict the next level of the rupee. Unlike the government, he does not believe that the dramatic fall in the Indian currency is due to global financial woes. “In my view, the changes in fundamentals and the price level by the market, this correlation is not very strong,” he says.

Sudip Bandyopadhyay, the managing director and CEO of Destimoney Securities says that as far as the market is concerned, if the rupee slide stops, we may see a fresh bout of buying simply because of the fact that what is biting us today will come back and present us with an opportunity.

But will an opportunity ever come up? Despite a slew of rescue efforts initiated by the Reserve Bank of India, the latest one being the announcement last evening that it will buy government bonds worth Rs 12,000 crore, it failed to arrest the weakened currency.

Rajvade, however, says foreign inflows will not start unless the rupee stabilises and merely stabilising at some level could do something temporarily. He says the problem is not cyclical but structural and that we need a lot more fundamental policy issues to be sorted out.

Bandyopadhyay finds that the market is still in an oversold zone. “FIIs will find Indian stocks in terms of dollars probably much attractively valued compared to what it was in March because of the fact that the rupee has depreciated significantly. So things may turn a bit better if the rupee slide gets arrested.”

Nick Parsons of National Australian Bank predicts the rupee butchering to continue all the way down to 70 to the dollar - something oil importers, foreign institutional investors and corporates may not want to hear.

But after analysing the charts, Priyanka Kishore of Standard Chartered believes the rupee will extend its decline to 58 to the dollar, after which some strength might seep into the currency.

Greece: Back with a Vengeance

Some of the gains in global markets in the last two sessions started to diminish after the newsflow emanating from the euro zone turned negative again. European markets and the euro opened very weak today.

Greek Prime Minister Lucas Papademos has said there is only limited room for the country to negotiate its loan program which means Greece has to either stick to its painful austerity measures or quit the 17-bloc euro nation.

Germany’s reluctance over common euro zone bonds is also dampening optimism ahead of the European Union summit. Reports coming in suggest EU leaders are expected to discuss a number of measures to boost growth and productivity in the euro area, aimed at counterbalancing the effects of the ongoing austerity measures dictated by lenders. The European policymakers’ stance on the likelihood of a Greek exit will also be in focus.

So if our market is really looking for direction from Europe and if European leaders get their house in order, growth is ahead of us. If they can't, all bets are off.

Chelsea Saldanha
Chelsea.saldanha@network18online.com