The Indian rupee has been hitting new lows, having depreciated over 16% during the course of the year. The reasons for the fall in the rupee suggest that a demand for USD is higher than its supply in the country. This is because foreign investors are selling Indian equities and exports are not keeping pace with imports. Therefore, this fall is definitely a matter of grave concern for the Indian economy as higher imports into the country make it more expensive. Crude oil is the largest constituent of the country’s import basket and burgeoning crude oil prices in the international market is a matter of concern for India. Rising crude oil prices can cause inflation to go up and the implication can be a rising interest rate. So far this year, foreign portfolio investors have withdrawn Rs 68,000 crore from the Indian capital markets, with the equity outflow share being 27%. The RBI policy announcement of keeping interest rate unchanged came as a negative surprise for the currency markets and the markets in general. The Monetary Policy Committee (MPC) kept policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.50% post its fourth bi-monthly meet held on Friday, changing its future outlook stance from “neutral” to “calibrated tightening”. The domestic equity markets witnessed a sudden selling pressure, with the 30-share BSE Sensex ending 792 points down to settle at 34,376 levels and its NSE counterpart, the Nifty ending 282 points lower to close at 10,316 levels. The stock market view is of cautious outlook for the immediate term as most traders and market participants prefer to stay out. Because the Nifty 50 has technically broken the 200 Daily Moving Averages on the charts and given the macro headwinds, it would be prudent for investors to wait at this point of time and stay with their existing portfolio. Debt mutual fund investors are also quite concerned about the safety of their investment and what is happening in the Indian bond markets in the last few weeks. The IL&FS and NBFC issues have shaken the confidence and created nervousness and panic in the investor’s mind. To put it in perspective, right now the returns in debt funds are a major issue. But most fund managers are advising investors to stay invested as this carnage and volatility should subside in the next few weeks.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.