Triple shock!Mr Finance Minister.selling India off would not help much as Gold price surges most in 2 years, up Rs 1,310 as Indian rupee, stocks tumble.India out of trillion-dollar club; market cap slips to $985 billion!Growth story blasted.
Palash Biswas
Email:palashbiswaskl@gmail.com
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Mr Finance Minister.selling India off would not help much as Gold price surges most in 2 years, up Rs 1,310 as Indian rupee, stocks tumble.Indian government bonds headed for worst week in 4.5 yrs as a slew of government steps failed to prevent another record low for the rupee.The benchmark 10-year bond yield is at 8.67 percent, up 17 basis points (bps). Yields are up 56 bps this week, the most since January 2009.The rupee hit a record low of 62.03 to a dollar in early trade, breaching the previous low of 61.80 seen on Aug 6.Government and RBI measures are all seen as incremental to lowering current account deficit.Dealers awaiting auction cutoffs with one or more bonds likely to be devolved.For many international majors that have leveraged the India shining story to offset declining sales in their home markets, the country's slowing growth and the rupee's weakness have come as a party pooper.
RBI is not considering any capital control measures, it was clarified today as the central bank's recent capital outflow measures spooked the stock markets.The new law also allows an Indian company to merge with a foreign company, making cross-border mergers and acquisitions easier.
Far away based in Washington,right in the heart of economic directorate of Indian US periphery, deputy chairman of the Planning Commission Montek Singh Ahluwalia,however announced to continue reforms as he said,Major economic policy reforms in India that require legislative changes is most likely to slip away until the next general election!He, however, assured businesses and investors and that current slowness in growth is only a temporary phenomenon and India would soon bounce back to eight per cent growth.
"I would assure that there is no item on the reform agenda which the Government of India had earlier said is on its agenda is now off. My expectation is that we are a little bit marking time.
On the other hand ,at home, Finance Minister Palaniappan Chidambaram said on Friday that the sharp falls in domestic markets that sent the rupee to a record low were a reaction to global developments and he expected calm to return.
Chidambaram, speaking to reporters, also said the fundamentals of the Indian economy had not changed and asked investors to wait for the April-June quarter growth numbers due at the end of the month.
"We have taken a number of measures," Chidambaram said.
"Let us wait for what the first quarter growth numbers are."
Chidambaram spoke on a day which saw the rupee plunge to a record low of 62.03 to the dollar and stocks sliding to their biggest single day fall in two years.
India out of trillion-dollar club; market cap slips to $985 billion!Growth story blasted. Indian stock market moved out of the trillion-dollar league on Friday as equities crashed, pulling down the total valuation of all listed companies to $985 billion on fresh concerns about the US stimulus withdrawal, and the rupee plunging to a historic record low of 62.
Market capitalization of all the listed companies stood at Rs 60,73,881.22 crore as stocks witnessed bloodbath that dragged down the BSE 30-stock benchmark, Sensex, by 769.41 points to 18,598.18 - its biggest fall in 4 years. The rupee also touched an all-time low of 62.03 against the US dollar. Mayhem in the stock market led the rupee to fall below 62-mark for the first time to touch an intra-day low of 62.03. It recovered some ground to record an all-time closing low of at 61.65.
The Reserve Bank of Indiaimposed partial capital controls on companies and individuals to stabilise the rupee, but the steps are likely to be perceived as turning the clock back on two decades of liberalisation.
Overseas direct investment (ODI) by Indian companies has been cut three-fourths, 100% from 400%, making it more difficult for local corporates to buy overseas assets. But the central bank exempted state-run Navratna companies, including Oil IndiaBSE -4.54 %and ONGC Videsh, to ensure that its moves do not cripple energy security.
RBI lowered overseas remittances by locals to $75,000 a year from $200,000, and prohibited investments in overseas property, dashing wealthy Indians' dreams of owning homes abroad. However, those in genuine need of foreign exchange beyond $75,000 per year could apply to the central bank for permission.
The bear market that started in 2008 is now beginning to become a true one, says Shankar Sharma of First Global in an exclusive interview with ET Now.
Speaking about how today's fall in the stock market is different from a routine bear market, he says, "What is different is that it is no more a stealth bear market, it has become evident. People kept talking that the mother of bull market is ahead us (after 2008), and all those things, but the fact is that the bear market already started then, today it is becoming manifest, it's becoming stark, it's becoming apparent."
Asked if the markets have bottomed out, Sharma says, "why do we start talking about bottoms when the market falls, why don't we talk about markets topping out when it rallies two per cent...Right now, capital preservation is the only goal; forget about bottom-fishing and all."
According to Sharma, the central banks of most Asian countries are risk-averse. "When central banks are risk-averse, you do not create bull markets," he opined. "Nifty is headed to levels of 5,000 in the near term," he added.
Acknowledging that India is seeing a very tough macroeconomic environment, Sharma warned that a 5% GDP growth cannot be taken for granted. "Markets do not value absolute growth, they look at relative changes of growth numbers," he said. "There will be flat or modest earnings growth this year," he added.
Sharma sees crude oil correcting substantially but is still bearish on commodities. "I don't agree with Jim Rogers. It is dumb to remain invested in commodities," he said.
Commenting on banking stocks, Sharma said that he is not looking to invest in them. "I see a huge downside. Profits for private sector banks will slow down," he told ET Now.
Sharma is of the opinion that IT stocks will hold their head above the water and that Infosys will be a better company under Narayana Murthy's management.
Asked about the US markets, Sharma said that they will fall as well, though maybe not as much as EMs. "The key question is how quickly QE tapers off from September," he said.
"It's essentially capital control," said Neeraj Gambhir, MD at Nomura. "(But) the actual impact on outflows may not be large since the approval route is still open and some parts are outside the purview of these measures. The signalling effect is, however, important," he said.
Defending the steps, Finance Minister P Chidambaram told ET NOW there was no intention of bringing back capital controls. "RBI's measures are not to be understood as capital control. The announcement preserves the right of a corporate to go to RBI and seek approval in case it wants to take out more than 100% of net worth. These are temporary measures and I am sure RBI will revisit them at an appropriate time," Chidambaram said.
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"These measures are to create a stable policy environment for rupee," Arvind Mayaram, secretary, department of economic affairs, told reporters on Wednesday evening. "When therupee finds its level, these could be reversed," he added.
While seeking to curb outflows, RBI also incentivised banks to raise US dollar deposits by exempting fresh deposits by overseas Indians from reserve requirements. Currently, 4% of deposits have to be held in cash with RBI and 23% of the deposits have to be used to buy government bonds.
RBI also raised the ceiling on foreign currency non-resident (bank) deposits to 400 basis points above the benchmark Libor, or London interbank offered rates, from 300 basis points earlier for deposits maturing between 3 years and 5 years.
Further, the interest rates that banks can offer on non-resident (external) rupee deposits have been de-linked from the domestic rupee deposit rates. Earlier, banks had to keep their rates on non-resident (external) rupee deposits lower or at par with rates offered on domestic rupee deposits.
For good measure, RBI, which came up with a flurry of announcements on Wednesday evening, also banned imports of gold coins and medallions and tightened the links between gold imports and exports.
Indian companies, which are buying assets overseas due to poor domestic investment climate, will be the worst hit because of the controls on overseas investments.
BSE Sensex plunged as much as 769.41 points while NSE Nifty fell 234.45 points on Friday, marking their biggest single-day drop in almost two years, as blue chips including HDFC Bank were hit across the board on fears US stimulus tapering would hit foreign selling.The market mayhem drained investor wealth by as much as Rs 2 lakh crore,mid you.What about so much so hyped investers`confidence,Mr Chidambaram?Gold price today surged by Rs 1,310 per 10 gram here, the highest in two years, to Rs 31,010 on strong demand from stockists ahead of festive season, after government increased import duty on the metal to 10 per cent.A sharp fall in Sensex and rupee against dollar and strong global cues also contributed to the upsurge in gold price, which posted the biggest single-day gain after August 19, 2011. Interestingly, the metal had shot up by Rs 1,310 on August 19, 2011 as well.
Wherever there is a legislative changes needed (for economic reform) it will slip a little over the next elections," Ahluwalia said in his address to the 38th Annual Leadership of the US India Business Council (USIBC).
Addressing top American CEOs during the inaugural session of the USIBC annual gala, the Planning Commission urged the attendees including government officials and former US ambassador to India "not to be too depressed" over the slowness of growth, or the volatility of the Indian currency.
"These are short term management problem. The medium term and long term growth prospects is very good," he said, adding the government commitment to economic reform remains the same.
It is only that "the policy reform would slip away due to the elections," he pointed out.
Observing that the Indian government of late has taken a series of executive actions in implementing some of these reforms or removing the hurdles, Ahluwalia said that these are indications of India's commitment to reforms and thus should be assuring for US investors and businesses.
"You can't call these reforms," Ahluwalia said referring to the series of executives decisions being taken by New Delhi including putting on hold those related to preferential market access.
In an election year, he argued, it is better to take these executive decisions, rather than spending time and energy on legislative changes.
Acknowledging the concerns of the American businesses, lawmakers and academicians, Ahluwalia said India is very clear that there is a big agenda of reform ahead of it.
Indian stock market's valuation had earlier dropped to $985 billion on August 7, after slipping below the one-trillion dollar level a day prior to that. However, it regained the level on August 8. India had first entered the trillion-dollar club in June 2007, but moved out in September 2008, amid the global slowdown. It again got back into the elite league in May 2009 and had largely remained there since then, except for some brief periods including once in 2012. The rupee weakness has been a key force behind the dollar -valuation plunge in the recent months.
Since the beginning of the current fiscal in April 2013, though the rupee valuation of Indian stock market has fallen by nearly 5 per cent, its dollar valuation has plunged by 19.76 per cent. The rupee has depreciated by over 13 per cent during this period. With India out of this league, only 13 stock markets across the world now enjoy a trillion-dollar status, led by the US (an estimated $20 trillion). Others in this club are UK, Japan, China, Canada, Hong Kong, Germany, France, Switzerland, Australia, South Korea, Nordic region and Brazil.
Markets like Russia, Spain and South Africa have also moved out of this club after enjoying a trillion-dollar status in the past, while at least three others — Brazil, South Korea and Nordic region markets — are maintaining this level with small margins.
Gold has regained Rs 31,000 level after a gap of six months. An all-time high was Rs 32,975 per 10 gram on November 27, 2012, in Delhi bullion market.
Silver followed suit and spurted by Rs 3,270 to Rs 49,320 per kg, its biggest single day gain this year on rising demand from industrial units and coin makers.
Bullion traders attributed the sharp jump in gold prices to fear of tight supply following government's decision to hike import duty of silver and gold to narrow current account deficit.
The buying sentiment got bolstered as rupee hit record low of 62 against the US currency, making the dollar -denominated metal costlier.
Seeking to reduce gold imports, RBI also prohibited inward shipment of gold coins, medallions and dores without licence.
"Gold is back in demand as falling rupee and melting equities leaving no place for investor to park their funds," All India Sarafa Bazar vice president Surender Jain said.
He said a firming trend in overseas markets also supporting the bullion where as market hardly witness any physical buying.
Gold in overseas markets climbed to two-month high on strong buying from China and prospects for less US monetary stimulus. The metal rose by 0.50 per cent to 1,372.97 dollar an ounce in Singapore.
On the domestic front, gold of 99.9 and 99.5 per cent purity spurted by Rs 1310 each to Rs 31,010 and Rs 30,810 per ten grams respectively. Sovereign followed suit and climbed by Rs 200 to Rs 24,700 per piece of eight gram.
After gaining 703 points in the last four sessions, BSE Sensex plunged 769.41 points, or 3.97 per cent, to 18,598.18 on all-round selling. Consumer durables, realty, banks and metal sector took major beating.
Related: Foreign investors baulk as rupee hits record low
Dipen Shah, Head of Private Client Group Research, Kotak Securities said: "Markets started on a soft note on weak global cues but fell suddenly and sharply on continuing concerns over the depreciating rupee and tapering of monetary stimulus by US Fed.
Rupee fell to an intra-day low of 62 to the US dollar.
The broad-based NSE Nifty nosedived by 234.45 points, or 4.08 per cent to 5,507.83, after touching day's low of 5,496.05. Also, SX40 index, the flagship index of MCX-SX, closed at 11,083.52, down 428.63 points or 3.72 per cent.
In 30-share Sensex pack, barring Hero MotoCorp, all stocks closed with heavy losses. Major losers were Reliance Industries (4.62 pc), Sterlite Industries (6.65 pc), ONGC (6.06 pc), Jindal Steel (5.46 pc) and L&T (5.19 pc) and Maruti Suzuki India (4.84 pc).
Others like SBI (3.32 pc), BHEL (10.70 pc), GAIL (6.49 pc), HDFC (5.81 pc), HDFC Bank (5.05 pc) and ICICI Bank (5.02 pc) also bore the brunt of investor selling.
As the benchmark S&P BSE Sensex tanked by more than 700 points in the afternoon, the Finance Ministry today said excessive rupee volatility is impacting the equity markets.
"Our sense is that what is seen in India is happening due to what is happening all over the world. The rupee worry also spills over to the equity markets and the equity worry spills over to the rupee. It is potentially vicious," a ministry official said.
As the benchmark S&P BSE Sensex tanked by more than 700 points in the afternoon, the Finance Ministry today said excessive rupee volatility is impacting the equity markets.
"Our sense is that what is seen in India is happening due to what is happening all over the world. The rupee worry also spills over to the equity markets and the equity worry spills over to the rupee. It is potentially vicious," a ministry official said.
Stocks: Top Gainers/Top Losers
The rupee today touched an all-time low of 62.03 to a dollar, spooking the equities market and dragging the Sensex down to 18,621.39 in the afternoon. The index had closed at 19,367.59 on Wednesday.
"The rupee will finally find a level based on the state of the economy...We are happy or prepared to live with orderly movement in the value of the rupee," he said, adding that the government and the RBI at present do not want to use their armoury and would rather stick to relatively smaller measures that won't choke growth.
"If the government wants to arrest the fall in the rupee by completely choking liquidity, it is very easy to arrest the fall in the rupee, thereby hurting the growth process," he said.
The decline in the currency and the equities markets, he said, was also on account of US data showing that joblessness in America was reducing, fuelling fears that the Federal Reserve would start withdrawing its stimulus.
US Federal Reserve Chairman Ben Bernanke had earlier indicated that the Fed could taper its bond-buying programme with an improvement in the US economy.
"The data which has come out indicates this could finally be the beginning of easing. It (the tapering) could be as early as next month's bond-buying programme," the official said, adding that this concern affected the markets .
Finance Minister P Chidambaram announced measures to allow public sector financial institutions to raise dollar-based loans from abroad and raised taxes on precious metals and other non-essential items to give the Reserve Bank of India additional reserves to keep the rupee within 60 to a dollar.
His announcements in Parliament and later with reporters came on a day when the factory production data released by the government shows a contraction of 2.2 per cent in June and of 1.1 per cent for the first quarter of the year. On a positive note, however, exports have hit double digits after two years while retail inflation has eased to 9.64 per cent in July from a month ago. This data, too, was released on Monday.
The minister hopes to compress the current account deficit to 3.7 per cent for this fiscal (4.8 per cent in 2012-13) or $70 billion, which will mean less pressure to attract foreign funds inflow to finance it. A lower deficit will also shore up the rupee as investors will see it as a sign the government is keen to improve the economy.
"The stability in rupee will depend on reducing volatility in the currency markets and impressing on players that the CAD will be contained and fully and safely financed," Chidambaram explained at his press conference.
But the announcements failed to elicit the expected reaction from the currency markets and the rupee fell 39 paise to end at 61.27 against the US dollar.
"The markets were slightly subdued after the industrial production and retail inflation data was released. But if the government can manage to stem the gold and oil imports, it will give them a good shot at containing the CAD," said Saugata Bhattacharya, chief economist at Axis Bank.
Stocks: Top Gainers/Top Losers
The rupee today touched an all-time low of 62.03 to a dollar, spooking the equities market and dragging the Sensex down to 18,621.39 in the afternoon. The index had closed at 19,367.59 on Wednesday.
"The rupee will finally find a level based on the state of the economy...We are happy or prepared to live with orderly movement in the value of the rupee," he said, adding that the government and the RBI at present do not want to use their armoury and would rather stick to relatively smaller measures that won't choke growth.
"If the government wants to arrest the fall in the rupee by completely choking liquidity, it is very easy to arrest the fall in the rupee, thereby hurting the growth process," he said.
The decline in the currency and the equities markets, he said, was also on account of US data showing that joblessness in America was reducing, fuelling fears that the Federal Reserve would start withdrawing its stimulus.
US Federal Reserve Chairman Ben Bernanke had earlier indicated that the Fed could taper its bond-buying programme with an improvement in the US economy.
"The data which has come out indicates this could finally be the beginning of easing. It (the tapering) could be as early as next month's bond-buying programme," the official said, adding that this concern affected the markets today.
Finance Minister P Chidambaram on Wednesday said that theReserve Bank of India must also focus on growth and job creation instead of just targeting price stability, sending a strong signal to the next governor Raghuram Rajanabout the government's expectation from monetary policy.
The government had wanted the RBI to cut rates at a faster pace to stimulate growth before the rupee depreciation forced a convergence of view in favour of short-term tightening to stabilise the Indian currency that has dropped over 12% since May.
"Yes, the mandate of central bank traditionally is price stability. In fact there are many who would argue that should be the only goal of the central bank. But I believe, my party believes, my government believes that price stability must be seen as part of the larger mandate of growth and employment," Chidambaram said in adebate on the state of economy in the Rajya Sabha.
Chidambaram quoted US President Barack Obama to highlight that even in the US there was a perception that the central bank cannot have price stability as the only goal. "Obama two weeks ago said my next Fed chairman must have two objectives — one is price stability and other one is employment." Rajan will take over from governor D Subbarao on September 4.
The finance minister urged the Rajya Sabha to take a stand on the issue so that a message will go to the country and to the central bank that price stability is an important mandate of central bank but it is part of the larger mandate of promoting growth and employment.
Chidambaram said that the government is committed to fiscal consolidation and reducing current account deficit (CAD). "We will leave no stone unturned to contain CAD at $70 billion (in current fiscal) and add to the foreign exchange reserves...As fiscal deficit is a red line, the CAD is also a line and every endeavour will be made not to breach that line," he said. CAD has touched a record high of 4.8% of the GDP in 2012-13.
The minister also made a strong case for foreign direct investment, saying it was needed to bridge the current account deficit.
The finance minister said that steps are being taken to stabilise the rupee and expressed confidence that it will find its correct level."Given our fiscal deficit, given our current account deficit, there will be some pressure on rupee and rupee will indeed depreciate.
All that we are saying is that we cannot allow the rupee to go into a free fall. We are arguing for a stable rupee," he said. The rupee touched an all-time low of 61.80 on Wednesday before closing at 61.43, down 24 paise to a dollar. Responding to the debate over the poverty benchmark, Chidambaram said, "Whatever line you take, the number of poor has come down by 140 million."
Chidambaram said the wholesale price-based inflation has come down to below 5% in five months till June, but supply-side problems needed to be addressed to bring down the retail inflation.
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