Markets, rupee bounce back from Black Monday

Risk Appetite Returns After China Slashes Interest Rates

Indian stocks and the rupee bounced back on Tuesday, reflecting positive investor sentiment in other Asian and European markets, from their biggest single-day loss in six-and-a-half years.

On Monday, the Indian markets lost $100 billion (Rs 7 lakh crore) and global equities worth $2.7 trillion were wiped out, following a sharp drop in Chinese equities and fears over a slowdown in the global economic growth engine.

But on Tuesday, the BSE Sensex ended 290.82 points, or 1.13 per cent, higher at 26,032.38, while the broad-based Nifty rose 71.7 points, or 0.92 per cent, to 7,880.7. The rupee appreciated 0.8 per cent to 66.1 a dollar compared to its previous close of 66.65.

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After the Indian markets closed on Tuesday, People’s Bank of China — the country’s central bank — announced plans to cut its one-year lending rate and infuse long-term liquidity. The announcement boosted European equities and US futures indices — the pan-European Stoxx 600 rose over four per cent and Dow Jones traded over three per cent higher, indicating another potentially positive session for Indian equities on Wednesday.

“Fundamentally, nothing has changed in the Indian markets from where we were a few weeks ago, and the long-term growth opportunity remains intact,” said Kaku Nakhate, president and country head, Bank of America Merrill Lynch.

“Markets may be near-term choppy, ahead of the Fed announcement, but in the long term India will be a winner.”

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On Tuesday, the benchmark Sensex swung wildly in an 826-point range, during which it fell to its one-year low of 25,298. Short covering and bargain hunting led to a sharp recovery in several counters, said experts. The broader market sentiment, however, was mixed, with nearly one share declining for every advancing on the BSE.

Worryingly, the heavy selling by overseas investors seen over the last few days continued unabated. Foreign investors sold shares worth over Rs 2,000 crore, extending their sell-off to nearly Rs 10,000 crore in the past one week. Reserve Bank of India (RBI) once again tried to allay concerns over the slide in the markets and the rupee, saying that these were repercussions from the global events, but India was on the right path.

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“I would believe that in the medium to long term, we are on the right path. The reform agenda is progressing in the right direction. Having said that, we are at a stage where we cannot be disconnected from the global events,” said RBI Deputy Governor S S Mundra, on the sidelines of a FICCI-IBA banking seminar. On Monday, RBI Governor Raghuram Rajan had assured the Street that the central bank will have no hesitation in using foreign exchange reserves to reduce volatility.

Outgoing Finance Secretary Rajiv Mehrishi said markets would not always the best indicators of economic health. “The decline in our markets decline on Monday was in line with most of the developing economies. India has relatively less to worry because our macro-fundamentals are in place. Inflation is under control, decline in commodity prices helps us since we are a net exporter, and our current account deficit is very much under control. For India, this may be an opportunity to build on its strengths further.” 2

Domestic investors were once again strong buyers on Tuesday, purchasing shares worth nearly Rs 2,000 crore. On Monday, domestic institutions had pumped in over Rs 4,000 crore into the market.

Mutual fund managers said they had received robust investor flows into their equity schemes in the last two days.

Vedanta gained nearly eight per cent — the most among Sensex 30 stocks, followed by Tata Motors, which rallied 6.3 per cent and Coal India, which gained 5.2 per cent. Indian Oil, in which the government sold shares worth Rs 9,300 crore on Monday, gained 4.4 per cent.

Reference - http://www.business-standard.com/article/markets/market-rupee-bounce-back-after-black-monday-115082501015_1.html