China Derails Stocks, Rupee For a 2nd Day
Amid volatile global markets, rupee closes at 64.81 a dollar; seen breaching the 65 level
There could be more pain in store, as media reports suggest that Beijing could further devalue the yuan to boost the country’s exports, which in July fell 8.3 per cent from a year ago.
Though Chinese authorities had said Tuesday’s devaluation was a one-off move, a second reduction in the Chinese currency’s value on Wednesday led to speculation that other nations might also embark on a currency war. The yuan, which was devalued by 1.85 per cent on Tuesday, further fell 1.98 per cent on Wednesday.
Currency dealers said the rupee could soon breach the psychological 65-a-dollar level. “The next level for the rupee is expected to be 65.20. If it reaches that level, the rupee might even touch 65.80 a dollar. The Indian currency going back to lows seen on August 27, 2013, though, is a remote possibility,” said Xpress Money Chief Operating Officer Sudhesh Giriyan.
Some experts, however, believe the weakening could go beyond that. “The short-term outlook is not in favour of the Indian currency... there could be an extended weakness to 66.50-67 a dollar, with a dollar-rupee base at 64-64.50. More devaluation actions from China are not ruled out, and domestic cues build a risk of policy paralysis, with the government struggling to push through critical policy initiatives,” said J Moses Harding, group chief executive (liability & treasury management), Srei Infrastructure Finance.
The rupee’s weakening this time has been more gradual than that seen two years ago. While it had fallen from 60 a dollar to 65 in 19 trading sessions at that time, it has taken 260 trading sessions this time around.
“A gentle depreciation in the rupee would be welcome news for India. Given the global forex moves, this will help bring the REER (real effective exchange rate) to more reasonable levels, from the 11 per cent overvaluation at present. We still have large levels of unhedged foreign currency exposures. Hopefully, further monetary policy easing in India will help address this as well,” said Ananth Narayan, head (financial markets), Standard Chartered Bank
The central bank now has more ammunition to fight any currency volatility — with a $350-billion forex reserves, compared with $274 billion two years ago — but its intervention on Wednesday, according to traders, was limited. “The rupee could weaken to 65.50 a dollar in the near term. On Wednesday, RBI intervened in the market but that was not very effective,” said Ashwin Shetty, senior vice-president (treasury), UAE Exchange.
The Street believes RBI would discuss during its central board meeting, scheduled for Thursday, the present volatility arising out of Beijing’s action. HDFC Bank Chief Economist Abheek Barua said in a note to clients that the rupee was less overvalued than most of its Asian peers, excluding the Japanese yen. Besides, the fact that India was a current-account-deficit economy implied a fall in the prices of commodities, particularly crude oil, was likely to rein in the deficit and ensure the rupee outperformed it peer group.
The decline in stocks was led by metal companies, whose shares fell sharply for a second day in a row, amid a decline in prices of base metals and concerns of demand taking a hit due to Chinese substitution. Shares of Vendata and Hindalco dropped over seven per cent each, while Coal India and Tata Motors shares fell 5.5 per cent and 3.9 per cent, respectively. Market experts said shares of companies that had business links to China could continue to be under pressure. The banking stocks also came under pressure due to their exposure to commodity companies. State Bank of India fell 4.8 per cent, and ICICI Bank declined 3.4 per cent.
“Commodity prices are likely to remain volatile, with a downward bias, until events in China stabilise. India, by virtue of being a net commodity importer, should continue to be a beneficiary. However, we could see increasing stress of falling commodity prices on banks, where metals account for six per cent of outstanding loans,” said Abhay Laijawala, MD & head of research, Deutsche Bank.
The rupee’s fall, though, helped Indian technology companies, most of them exporters of services. Their shares gained for a second straight day.
Reference - http://www.business-standard.com/article/markets/china-derails-stocks-rupee-for-a-2nd-day-115081201468_1.html
China’s move to devalue its currency by another two per cent on Wednesday stunned economies globally, for a second straight day, sending shock waves across stock, commodity and currency markets; and Indian markets were no exception.
Following persistent dollar buying by importers, and amid limited intervention by the Reserve Bank of India, the rupee plunged to a low of 64.94 a dollar during the day before recovering a little to close at 64.81. The Indian currency, which had closed at 64.21 a dollar on Tuesday, is trading near its lowest level in two years. It had touched a low of 66.19 a dollar on August 27, 2013.
Following persistent dollar buying by importers, and amid limited intervention by the Reserve Bank of India, the rupee plunged to a low of 64.94 a dollar during the day before recovering a little to close at 64.81. The Indian currency, which had closed at 64.21 a dollar on Tuesday, is trading near its lowest level in two years. It had touched a low of 66.19 a dollar on August 27, 2013.
(SPOOKED BY THE DRAGON)
Similarly, stocks tumbled for a fourth straight day, with the BSE benchmark Sensex declined 354 points, or 1.3 per cent from its previous close, to end the day at 27,512.26, its lowest level since July 28. The National Stock Exchange’s Nifty fell 112.9 points, or 1.33 per cent, to close at 8,349.45. According to provisional data, foreign investors sold shares worth Rs 1,855 crore ($285 million), the most during a day in more than three months.
Similarly, stocks tumbled for a fourth straight day, with the BSE benchmark Sensex declined 354 points, or 1.3 per cent from its previous close, to end the day at 27,512.26, its lowest level since July 28. The National Stock Exchange’s Nifty fell 112.9 points, or 1.33 per cent, to close at 8,349.45. According to provisional data, foreign investors sold shares worth Rs 1,855 crore ($285 million), the most during a day in more than three months.
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There could be more pain in store, as media reports suggest that Beijing could further devalue the yuan to boost the country’s exports, which in July fell 8.3 per cent from a year ago.
Though Chinese authorities had said Tuesday’s devaluation was a one-off move, a second reduction in the Chinese currency’s value on Wednesday led to speculation that other nations might also embark on a currency war. The yuan, which was devalued by 1.85 per cent on Tuesday, further fell 1.98 per cent on Wednesday.
ALSO READ: India Inc's worries rise as yuan falls
Currency dealers said the rupee could soon breach the psychological 65-a-dollar level. “The next level for the rupee is expected to be 65.20. If it reaches that level, the rupee might even touch 65.80 a dollar. The Indian currency going back to lows seen on August 27, 2013, though, is a remote possibility,” said Xpress Money Chief Operating Officer Sudhesh Giriyan.
Some experts, however, believe the weakening could go beyond that. “The short-term outlook is not in favour of the Indian currency... there could be an extended weakness to 66.50-67 a dollar, with a dollar-rupee base at 64-64.50. More devaluation actions from China are not ruled out, and domestic cues build a risk of policy paralysis, with the government struggling to push through critical policy initiatives,” said J Moses Harding, group chief executive (liability & treasury management), Srei Infrastructure Finance.
The rupee’s weakening this time has been more gradual than that seen two years ago. While it had fallen from 60 a dollar to 65 in 19 trading sessions at that time, it has taken 260 trading sessions this time around.
“A gentle depreciation in the rupee would be welcome news for India. Given the global forex moves, this will help bring the REER (real effective exchange rate) to more reasonable levels, from the 11 per cent overvaluation at present. We still have large levels of unhedged foreign currency exposures. Hopefully, further monetary policy easing in India will help address this as well,” said Ananth Narayan, head (financial markets), Standard Chartered Bank
The central bank now has more ammunition to fight any currency volatility — with a $350-billion forex reserves, compared with $274 billion two years ago — but its intervention on Wednesday, according to traders, was limited. “The rupee could weaken to 65.50 a dollar in the near term. On Wednesday, RBI intervened in the market but that was not very effective,” said Ashwin Shetty, senior vice-president (treasury), UAE Exchange.
The Street believes RBI would discuss during its central board meeting, scheduled for Thursday, the present volatility arising out of Beijing’s action. HDFC Bank Chief Economist Abheek Barua said in a note to clients that the rupee was less overvalued than most of its Asian peers, excluding the Japanese yen. Besides, the fact that India was a current-account-deficit economy implied a fall in the prices of commodities, particularly crude oil, was likely to rein in the deficit and ensure the rupee outperformed it peer group.
The decline in stocks was led by metal companies, whose shares fell sharply for a second day in a row, amid a decline in prices of base metals and concerns of demand taking a hit due to Chinese substitution. Shares of Vendata and Hindalco dropped over seven per cent each, while Coal India and Tata Motors shares fell 5.5 per cent and 3.9 per cent, respectively. Market experts said shares of companies that had business links to China could continue to be under pressure. The banking stocks also came under pressure due to their exposure to commodity companies. State Bank of India fell 4.8 per cent, and ICICI Bank declined 3.4 per cent.
“Commodity prices are likely to remain volatile, with a downward bias, until events in China stabilise. India, by virtue of being a net commodity importer, should continue to be a beneficiary. However, we could see increasing stress of falling commodity prices on banks, where metals account for six per cent of outstanding loans,” said Abhay Laijawala, MD & head of research, Deutsche Bank.
The rupee’s fall, though, helped Indian technology companies, most of them exporters of services. Their shares gained for a second straight day.
Reference - http://www.business-standard.com/article/markets/china-derails-stocks-rupee-for-a-2nd-day-115081201468_1.html
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