The Indian markets continued their weak trade for second straight session to end near intra-day low level on Friday after the Reserve Bank of India (RBI) kept its repo rate unchanged at 6.5%, surprising street who had expected a 25-bps rate hike to defend the falling rupee. Today, the markets are likely to pessimistic start tracking negative cues from other Asian markets. Traders will be concerned about Exporters’ body Federation of Indian Export Organisations’ (FIEO) statement that the rupee depreciation is increasing the cost of imported capital goods, inputs and various services used by exporters paid in foreign currency, particularly the freight charges. Traders will also be reacting to the Reserve Bank of India’s (RBI) statement that the Centre and states should stick to the fiscal deficit target as any slippage will have an adverse bearing on inflation and increase market volatility. There will be some cautiousness with a private report that foreign investors have pulled out over Rs 9,300 crore ($1.3 billion) from the Indian capital markets in the last four trading sessions on unabated fall in rupee and rise in crude oil price. Also, another private report said that the share of private investments in the infrastructure sector has fallen to a decadal low of around 25% in FY18 steeply down from a high of 37% in FY08. However, traders may get some support with the World Bank in its latest report on South Asia saying that growth in India is firming up and projected to accelerate to 7.3% in the 2018-19 fiscal and 7.5% in the next two years. Besides, Union Finance Minister Arun Jaitley has promised more steps to cut the current account deficit (CAD) and bolster foreign exchange inflows, seeking to calm frayed nerves amid a stock market crash and falling rupee.
The US markets declined on Friday after strong US jobs numbers signaled a continued tightening of the labor market and increased inflation pressures, while Treasury yields rose again to multi-year highs. Asian markets were trading mostly in red on Monday as investors waited with bated breath as China’s markets prepare to reopen following a week-long holiday and after its central bank cut banks’ reserve requirements in a bid to support growth.
Back home, extending southward journey for third straight day, Indian equity benchmarks witnessed bloodbath with frontline gauges ending below their crucial 34,400 (Sensex) and 10,350 (Nifty) levels. Markets started the session on pessimistic note, as traders remain concerned about Union minister Nitin Gadkari’s statement that the country is facing lot of economic crisis due to crude oil imports and need to reduce imports and increase exports. Some cautiousness also crept in with a private report that liberalising foreign borrowings for oil companies to raise to $10 billion will not have a material impact on arresting the slide of the rupee. Adding some worries, Fitch Ratings in its latest report said that the acquisitions of distressed Indian steel assets could significantly increase the leverage of the acquiring companies, which also face the risk of domestic output being displaced by a substantial increase in imports from the escalation of trade barriers. Selling got intensified in last leg of trade to end below their respective crucial levels, after the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5%. However, the MPC changed the stance from ‘Neutral’ to ‘Calibrated Tightening’. Domestic sentiments also got hit with a private report indicating that amidst the erratic distribution of monsoon rains and with the possibilities of as many as 254 districts facing drought like situation, the total kharif cereals production likely to decline marginally by 1.71% compared to last kharif. The markets participants paid no heed towards Finance Minister Arun Jaitley’s statement that the government is determined to contain the crisis at the IL&FS at the earliest so that it does not leave any adverse impact. The street even overlooked a report that salaries in the country are projected to increase by 10% in 2019, the highest in the Asia Pacific region. Finally, the BSE Sensex tumbled 792.17 points or 2.25% to 34,376.99, while the CNX Nifty was down by 282.80 points or 2.67% to 10,316.45.