Indian shares ended lower yesterday, after fluctuating earlier in the session, as overall sentiment remained dented after the US Federal Reserve chair Janet Yellen signalled an interest rate hike was imminent, while investors back home were worried about the government’s move to remove high-value notes. The gauge had plunged by 1,290.06 points in the previous four sessions.
Financials and consumer staples led the declines, with ICICI Bank closing down 1.1%, State Bank of India dipped 0.6%, while cigarette maker ITC dropped 1.58%and Colgate-Palmolive India declined 1%.
The Nifty closed down 0.07% at 8,074.10, while the Sensex ended down 0.30% at 26,150.24. Both the indexes posted their fourth straight weekly losses.
Meanwhile the rupee yesterday closed near nine-month low against the US dollar, after foreign institutional investors (FIIs) continued to sell in the local equity and debt markets following the global trend amid prospects of an interest rate hike by the US Federal Reserve.
This was the four out of five trading sessions when the rupee closed lower.
The rupee closed at 68.14 a dollar— a level last seen on February 29, down 0.45% from its previous close of 67.83.
The home currency opened at 68.01 against the US dollar and touched a low of 68.24, a level last seen on March 1. So far this year, it fell 3%.
“Following Fed chair’s testimony, the odds of a December US rate hike has increased, adding fuel to dollar’s rally. This dragged down currencies of emerging markets, already under pressure of fund outflow following US electoral outcome,” said Anand James, Chief Market Strategist, Geojit BNP Paribas.
However, a December rate hike will not surprise markets into further weakening of rupee, and there are no clear indications from yesterday’s testimony regarding the pace of further rate hikes, James added
The benchmark 10-year government bond yield closed at 6.429%, compared to Thursday’s close of 6.42%. Bond yields and prices move in opposite directions.
“The demonetisation-driven cash crunch that is playing out in India will paralyse economic activity in the short term. Hence, we expect GDP growth to decelerate from 6.4% in 1HFY17 (as per Ambit est.) to 0.5% YoY in 2HFY17 with a distinct possibility of GDP growth contracting in 3QFY17” Broking firm Ambit Capital said in a note to its investors.
“However, from 3QFY17 until 4QFY19, we expect a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40% share in GDP) become unviable and cede market share to their organised sector counterparts.
We expect this dynamic to crimp GDP growth in India in FY18 as well and hence we cut our FY18 GDP growth estimate to 5.8% YoY (from 7.3%)”, the report added.
Asian currencies declined as the dollar strengthened after Federal Reserve Chair Janet Yellen indicated the central bank is close to raising interest rates.
A gauge of the greenback rallied to the highest since February after Yellen told lawmakers Thursday that a rate hike “could well become appropriate relatively soon” as the US economy continues to gain traction, Bloomberg reported.
Taiwan dollar was down 0.71%, South Korean won 0.59%, Malaysian ringgit 0.54%, Philippines peso 0.5%, Indonesian rupiah 0.41%, Japanese yen 0.25%, Singapore dollar 0.2%, Thai Baht 0.19%, China Renminbi 0.1%. However, China Offshore spot was up 0.07%.