It was bedlam on D-Street today as rupee hit a new all-time low versus the dollar and fears of a rise in interest rates given disappointing economic cues saw the benchmark indices posting their biggest percentage intraday loss since September 2011.
In the currency market, the Indian unit breached the psychological 62 per dollar mark as the measures being taken by the government and the Reserve Bank proving ineffective. The rupee surpassed its previous all-time low of 61.80 per dollar.
To compound problems, inflation based on the Wholesale Price Index shot up to 5.79% in July as against 7.5% in July 2012 and 4.86% in June. The steep month-on-month rise in headline inflation is attributed to a spurt in the prices of basic essential items like food articles and variants of petroleum products. Manufactured products also contributed to the rise in inflation, after witnessing a decline for the past three months. Four sub-indices -- food, mineral oils, paper, rubber and plastic products -- accounting for about 46% of WPI, contributed about 88.7% to headline inflation, negating the benefits of a fall in the prices witnessed in other segments. But consumer price index-based inflation declined to 9.64% in July from 9.87% in the previous month.
Strong growth in exports to the tune of 11.6% year-on-year at $25.8bn in July compared to $23.1bn a year ago and lower gold as well as crude oil imports helped in reducing India’s trade deficit to $12.3bn against $17.8bn registered in July 2012. The export number, which is the best in nearly two years, was propelled by higher demand for pharmaceuticals, textiles, chemicals and petrochemicals, and a falling rupee. Gold imports fell to $2.97bn as compared with $4.47bn month-on-month.
The Index of Industrial Production for June declined 2.2% as against a 2% fall in June last year. The contraction in output was because of a broad-based fall in industrial activity, largely due to weakness in the consumer durables segment. A relatively higher base of the consumer durables segment in the year-ago period coupled with falling automobile production led to a 10.5% year-on-year contraction in the consumer durables segment in June 2013. IIP, excluding the consumer durables segment, declined 0.7% in June compared to a 3.7% fall in June 2012.
Bolstered by trade deficit of June and July, Finance Minister P Chidambaram pegged India's current account deficit at a three-year low of 3.7% of the gross domestic product in 2013-14. CAD had touched the record 4.8% in the last financial year. His plan of action included curbing imports of non-essential goods to check CAD and raise dollars through quasi-sovereign bonds and external commercial borrowings to fund CAD.
The government also raised import duty on gold and silver to curb sales in India. With this revision, the import duty on gold has now shot up to 10% from the existing 8%. For silver, it is now 10% from 6% now. Also, excise duty on refined gold produced through processing of dore bar (ores) has been raised from 7% earlier to 9% now. The entire duty increase is set to net the government Rs. 4,830cr.
In corporate news, Moody’s downgraded the credit assessment of three banks -- Bank of Baroda, Canara Bank and Punjab National Bank which added to the selling pressure in bank stocks. The other sectoral losers included realty, capital goods and power stocks.
The economic and corporate scene was much better overseas, with dark clouds hovering over Europe abating.
The US government posted a 38% smaller budget deficit in the 10 months through July than a year earlier. Outlays exceeded receipts by $97.6bn last month, compared with a $69.6bn shortfall in July 2012, the Treasury said.
US retail sales rose in July for a fourth consecutive month, showing American households are regaining momentum as employment climbs. The 0.2% increase in purchases followed a 0.6% June gain that was larger than previously reported.
Inventories at US companies were little changed in June as sales improved, signaling manufacturers will be growing orders. Stockpiles held at around $1.66bn after dropping 0.1% in May.
Employers fired the fewest workers last week since before the recession began almost six years ago, raising expectations that bigger job gains will soon give US consumers the ability to boost spending. The number of claims for jobless benefits dropped by 15,000 to 320,000 in the week ended August 10, the least since October 2007. Other figures showed consumer confidence hovered near a five-year high last week, builder sentiment jumped this month to the highest level since 2005 and manufacturing is struggling to gain traction following a slowdown earlier this year.
The cost of living in the US rose in July for a third month, supporting the Federal Reserve’s forecast that inflation will move closer to its target. Consumer Price Index increased 0.2% after a 0.5% gain in June.
Holdings of US Treasuries in China, the largest foreign lender to the US, fell in June for the first time in five months amid discussion by Federal Reserve officials about slowing the pace their bond purchases. China’s stake dropped by $21.5bn in June, or 1.7%, to $1.276 trillion.
Industrial production in US was unchanged in July as a slowdown at factories overshadowed an increase in mining. The reading for output at factories, mines and utilities followed a 0.2% gain the prior month that was smaller than previously reported.
A sharp rebound in eurozone industrial output for June is another pointer that the single currency bloc is finally edging out of a record 18-month recession. Industrial production in the Eurozone jumped 0.7% from the level in May when it fell 0.2%, bolstering hopes that overall economic growth figures due on Wednesday will show a long-awaited switch out of recession.
In Asia, China will push ahead with efforts to cull excess industrial capacity a year earlier than planned even as economic expansion slows, and will promote spending on information products to stabilise growth. The government will complete by the end of 2014 its overcapacity reduction plan for the five years through 2015, and will seek to cut further outdated capacity.
Japan's economic growth slowed more than expected in Q2, offering ammunition to those seeking to temper a planned sales-tax increase even as govt debt has risen past 1,000 trillion yen. But as the sharp slowdown was driven by an unexpected fall in corporate capital spending, the data may encourage Prime Minister Shinzo Abe to proceed with the tax hike and soften the pain by offering tax breaks to boost business investment.
Japan's industrial output fell 3.1% in June, although analysts see a steady pickup in factory activity remaining intact.
For the week, the indices shed all their gains, slipping 1% each. In the earlier four sessions, the Nifty had managed to recoup nearly 270 points, or 4.8%, since its August 7 lows.
So, how will the market trade next week? Hadrien Mendonca, Technical Analyst at IIFL, expects market participants to look towards international cues for further direction given that the results season is behind us. "In the US, the Federal Reserve would release minutes of the FOMC meeting next week. Technically, the Nifty has reversed from its 38.2% retracement level, which also coincides with the intermediate rising trendline resistance levels. If the Nifty breaches the 5,470 mark on a closing basis, the Nifty could further fall down another 100 points,” he stated.
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