Benchmarks continue weak trade despite easing inflation numbers

Indian equity benchmarks were trading near the low point of day as selling continued amid concerns about the global economy and recent heavy selling by foreign institutional investors. A weak rupee and a rather disappointing reporting season hurt sentiments of the investors to a significant extent. Meanwhile, primary articles inflation for week ended November 12 has declined at 9.08% versus 10.39%, food articles inflation is at 9.01% versus 10.63%, while fuel group inflation remains unchanged at 15.49%. On sectoral front, all were trading lower. Metal, realty, consumer durables, realty, information technology and metal stocks were mostly trading weak. Stocks from bank, healthcare, oil and power stocks were also trading lower. Capital goods and automobile stocks, which found some support earlier this morning, are drifting down now. Shares of Tata Steel and Tata Motors fell after the salt-to-software Tata conglomerate announced a successor to Chairman Ratan Tata. On the global front, most of the Asian markets turned in red. Back home, the market breadth favoring the negative trend; there were 729 shares on the gaining side against 1,607 shares on the losing side while 93 shares remained unchanged.

The BSE Sensex is currently trading at 15,534.90, down by 165.07 points or 1.05%. The index has touched a high and low of 15,729.01 and 15,479.97 respectively. There were 7 stocks advancing against 23 declines on the index.

The broader indices too were beleaguered by additional selling pressure; the BSE Mid cap and Small cap indices declined by 0.79% and 0.97% respectively. 

Selling was witnessed across the board so there were no gainer on the BSE sectoral space, however, CD down by 1.48%, Realty down by 1.44%, IT down by 1.44%, Metal down by 1.38% and TECk down by 1.04% featured in the worst list of performers on the BSE Sectoral front.

The top losers on Sensex were HDFC Bank down by 2.84%, Tata Steel down by 2.48%, Infosys down by 2.01%, HDFC down by 1.87% and Sun Pharma down by 1.71%.

On the flip side, gainers on the Sensex were Maruti Suzuki up by 0.52%, ONGC up by 0.49%, Bharti Airtel up by 0.42%, JP Associates up by 0.42% and Tata power up by 0.33%.

Meanwhile, in order to control the declining trend of rupee against dollar, the Reserve Bank of India (RBI) directed Indian companies to bring back offshore funds, raised via external commercial borrowing (ECBs) for the purpose of domestic business expenditure. Those funds need to be deposited with Indian banks.

The RBI said, 'the proceeds of the ECB raised abroad for rupee expenditure in India, such as, local sourcing of capital goods, on-lending to self-help groups or for micro credit, payment for spectrum allocation etc. should be brought immediately for credit to rupee accounts with AD category I banks in India.’

Besides, the RBI said these ECB proceeds cannot be used for investment in capital markets, real estate or for inter-corporate lending.  However, ECB proceeds meant only for foreign currency expenditure can be retained in abroad.

The rupee-dollar movement is a function of demand and supply, this step by the central bank is expected to strengthen rupee against dollar. Bringing back of money from abroad will create demand for rupee against the dollar, which in turn will help rupee to rise against the greenback.

Analysts are of the view that the measures taken by the RBI will stop rupee’s depreciation to an extent as some exporters and project finance companies seem to be holding back their money rise via ECBs in overseas. In the anticipation of further rupee depreciation, they are not bringing it now. For instance, if any firm takes a loan via ECB when rupee is at 48 per dollar, with rupee at 52, they will get benefit of Rs 4 per dollar.

In another move, the RBI has increased the ceiling of ECB rate. Firms can now borrow foreign funds at a higher rate at six months London Interbank Offered Rate (LIBOR) plus 350 basis points compared to LIBOR plus 300 basis points earlier, for an average maturity period of three to five years. For maturity period of more than five years, rates remain unchanged at 6 month LIBOR plus 500 bps. The enhancement in ceiling will be applicable up to March 31, 2012.

The change in rates is aimed at encouraging firms to raise more funds through ECBs, thereby bringing that money back to India. Sequentially, it will prompt dollar selling against the rupee. However, firms are less likely to go for more ECBs as the hedging cost is also very high in current condition.

The ECBs enable firms to borrow at a cheaper rate as domestic interest rates are costlier than international rates. However, RBI sets ceiling of ECB borrowing rate as excessive borrowings via ECBs will lead to drying up foreign exchange reserve, as firm borrowing funds via ECBs are required to repay their loans only in foreign currency. On November 23, rupee touched its lowest level of Rs 52.73 per dollar. This decline in rupee is expected to push inflation and adversely affect the capital market. 

The S&P CNX Nifty is currently trading at 4,654.50, down by 51.95 points or 1.10%. The index has touched a high and low of 4,714.25 and 4,639.10 respectively. There were 10 stocks advancing against 40 declining ones on the index.

The top gainers of the Nifty were GAIL up by 2.79%, Axis Bank up by 1.43%, Tata Power up by 0.44%, Bharti Airtel up by 0.42% and JP Associate up by 0.33%.

SAIL down by 4.78%, Ambuja Cement down by 3.21%, Siemens down by 3.09%, Reliance Power down by 2.83% and Tata Steel down by 2.63% were the major losers on the index.

Most of the Asian market turned in red; Hang Seng down by 0.19%, Straits Times down by 0.04%, Shanghai Composite lost 0.73%, Jakarta Composite slid 0.45% and Nikkei 225 plunged 1.51%.While, Seoul Composite captured 0.73%, KLSE Composite added 0.40% and Taiwan Weighted rose 0.85%.