No silver bullet for market, FIIs in no mood for a rupee slide

A day before the expiry of monthly derivative contracts, the BSE Sensex crashed as much as 587 points to hit an intra-day low of 15,478.69, before closing down 365.45 points at 15,699.97. The Nifty ended at near two-year low of 4,706.45.

The close could have been much worse had there not been some short covering during the last few minutes of trade.

However, even though the market managed to recoup some of the losses, the undertone remained largely negative, and things are likely to get a lot worse before they start getting any better.

Even Finance Minister Pranab Mukherjee took note of the weak market condition and admitted that India willcontinue to face forex losses until the eurozone is stabilised. He said the market fall was largely led by withdrawal of foreign institutional investors.

Meanwhile, the rupee at the end of the day managed a minimal recovery with the valuation of 51.36 against the dollar.

However, the recovery failed to impress the FIIs as they are no longer willing to wait and watch the currency slide further.

There were some unconfirmed market rumours about a Rs 800 crore ETF fund closing down, which led to the sudden sell off in the market.The fund is said to have a large stake in large-cap companies like Infosys and HDFC Bank.

According to Alok Sama of Baer Capital, pressure on the rupee and cost of capital are two key concerns for the market. However, he does maintain a bearscenario where there could be a liquidity driven rally by year-end. Industrial, capital goods and infra stocks were the biggest losers of the day. Consumer durables shares suffered as well.

“A general weakness was seen across counters today which led to a sell-off in the market today,” says Firstpost Investing Editor, Shishir Asthana.

Another thing to note is the reverse effect of the rupee on the IT sector. One would think a depreciating rupee would have a positive impact on the IT sector. However, software majors have been betting on the short side. Hedging ensures that IT companies do not get the full benefit of a fall in the rupee and secondyly, volatility in currencies affect a company’s pricing capabilities.

“while the depreciation in the currency could throw up some short-term gains for IT stocks, the more important point to remember is that the business environment outlook still remains muddied,” says Firstpost reporter Rajanya Bose.

Our advise: The time is right to just sit on cash, there is no point in catching the bottom.

For more on the market’s performance, listen to our market wrap below: