Nifty below 5000: Experts say global cues the party-pooper

As they say, it’s never a dull day on Dalal Street.

Finance Minister Pranab Mukherjee’s decision to defer the implementation of general anti-avoidance rules (GAAR) by one year brought cheer to Indian benchmarks yesterday, but that’s where the celebration ended. The market opened on a sober note today, and soon after the Nifty and Sensex tipped into the red and continued their downtrend. This was opposite to what expectations were. Without the shadow of GAAR looming over investors, experts had said that the market would take-off on a strong rally today. Sameer Arora of Helios Capital earlier this morning said that the FM’s decision sends a positive signal to foreign investors, and that FIIs will once again be interested in India if the government shows willingness to move towards reforms. Ajay Bodke of Prabhudas Lilladher shares the same view. “The deferment of GAAR by one year will provide both administration officials as well as investors a breather to understand all the regulations over a one year period,” he said. The situation on the street, however, was the exact opposite. Heavy selling in some index heavyweights persisted throughout the day, weighing down both indices. At the end of trade, the Nifty closed below 5,000 for the first time since January, while the Sensex lost over 350 points. Sudarshan Sukhani of s2analystics.com says yesterday’s pullback was only a short covering rally, and that there is still not buying interest above 5,100. Therefore, he says he will build on short positions with confidence over the next few days. GAAR deferred, but will it reel in FIIs? While the general consensus is that foreign institutional investors will start pumping money back into India, yesterday’s activity data indicates things might not be so easy. FIIs sold over Rs 600 crore in trade yesterday, despite the positive announcement from the FM. According to portfolio manager PN Vijay, global investors are going through a phase of risk aversion because of the outcome of the French and Greece elections. “However, when global liquidity comes back into equities, India would get a very major chunk of the emerging market liquidity,” he added. Over the weekend, Greece and France saw voters oust democratic parties who had invited austerity measures into both nations. In France, Francois Hollande dethroned Nicholas Sarkozy, while the extreme left party Golden Dawn won 7% Parliament vote in Greece. On the other hand, Sanjay Sinha of Citrus Advisors warns that India’s position as an attractive investment destination will depend on the domestic economic environment. “I think what's important right now is getting the politics and the economics right in the country,” he explained. He believes the three factors which are at the top of investors’ minds are the GAAR issue, the high trade deficit and the rupee depreciation. Since GAAR has already been addressed, Sinha says crude prices falling to USD 105 per barrel will help both the trade deficit and the currency. Tremors in the currency market It was not only equities that had a volatile ride today. The rupee reversed sharply from day's high of 52.68 a dollar and closed above the 53 level again, as globally uncertainty weighed on the greenback. “Even if India starts looking better than it did two weeks ago or two months ago, there is still not a whole lot of fresh money to come in,” explained Jamal Mecklai of Mecklai Financial Services. He explains that the RBI needs to walk away from its 'draconian' stance and should provide cues that reflect its understanding side. For the short term, Jayesh Mehta of Bank of America pegs the rupee at 53.75 to the dollar. Anisha Mappat
anisha.mappat@network18online.com