Sensex ends lower; rupee falls to 61.49 per dollar

Reuters

Mumbai

Indian share prices declined more than 1% yesterday, snapping two days of gains, as lenders such as State Bank of India and ICICI Bank slumped on worries that a sell-off in government bonds would hit the value of their debt holdings.

A slump in global shares also dented sentiment after Wall Street fell overnight and on reports of a build-up of Russian troops near the border with Ukraine.

The falls mark a cautious start to the month in Indian shares after a record-setting July.

The NSE index is down 0.6% so far this month, given concerns that weaker global markets will lead to reduced buying by foreign investors.

Overseas investors, who bought Indian shares worth $8.68mn on Tuesday, have sold shares worth $363.48mn so far this month.

Foreign investors have bought $11.79bn so far this year.

“Markets are likely to be choppy for the time being. Earnings are coming to an end. There is a lack of fresh triggers.

It would be more of news-driven kind of movement for the time being,” said Daljeet S Kohli, head of research at IndiaNivesh.

“However, the broader investor sentiment is still positive.”

The benchmark BSE index ended 0.94% lower at 25,665.27 points, while the broader NSE index ended 0.96% lower at 7,672.05 points.

Banking stocks led the decline after bonds tumbled on Tuesday, raising worries about their debt holdings.

The Reserve Bank of India had earlier on Tuesday cut the banks’ minimum bond holding requirements, known as the statutory liquidity ratio (SLR), as well as the debt that must be held-to-maturity (HTM) by lenders.

The existing benchmark 10-year bond yield surged 10 basis points to 8.83%, its biggest single-day rise in four months, on Tuesday and an additional 2 bps yesterday.

State Bank of India fell 1.93%, after gaining 0.5% in the previous session, while ICICI Bank Ltd ended down 2.7%.

Real-estate stocks were also hit by profit-taking. DLF fell 1.4% after gaining 2.2% in the previous session, while Indiabulls Real Estate closed down 5.6%. Among other blue-chips, Tata Motors ended 2.02% lower on profit-taking after gaining 2.3% on Tuesday.

Hindalco Industries closed 1.99% lower, while Oil and Natural Gas Corp fell 2.1%.

However, Infosys gained 1.8%, adding to its 1.4% gain in the previous session, after former officers of the IT outsourcer wrote a letter calling for a Rs112bn ($1.82bn) buyback.

Meanwhile the rupee posted its biggest single-day fall in six-and-half months yesterday as heavy dollar outflows from the domestic share and debt markets continued as foreign investors pared their holdings.

Foreign funds have sold $363.48mn worth equities and $440.15mn worth of debt so far this month, bringing down total inflows so far this year to $25.60bn.

The sales come on the back of weaker global markets, with risk assets hit yesterday on reports of a build-up of Russian troops near the border with Ukraine.

The risk aversion offset expectations the Reserve Bank of India would continue to focus on bringing down inflation to meet its goal of reducing the consumer price index to 6% by January 2016, which is expected to be supportive of the rupee.

“I think stability will come back soon,” said Samir Lodha, managing director at QuantArt Market Solutions.

“The inflation focus is a positive for the rupee, especially the supply side measures by the government.

Unless global markets see a deep correction, the rupee will hold in a broad 60.50 to 61.50 range with a bottom at worst limited to 62.”

The partially convertible rupee closed at 61.4950/5050 per dollar compared to 60.8450/8550 on Tuesday.

The rupee dropped 1.06% on the day, its biggest single-day fall since January 24 and its second-biggest fall so far in 2014.

Losses in the rupee tracked weaker Indian shares and other Asian currencies.

In the offshore non-deliverable forwards, the one-month contract was at 61.92 while the three-month was at 61.56.