Indian Equities Tank 2% Over Rupee Depreciation

The Indian markets tanked by nearly 2 per cent this week over rupee depreciation. Last week the credit rating agency, S&P, downgraded the long-term outlook on India to negative (BBB-) from stable. Beside, the negative run of the rupee has also impacted the markets. During the week the rupee was seen touching the USD 54 mark. On the last day of the week it touched Rs 53.77 per dollar.

Meanwhile, the proposed General Anti-Avoidance Rule (GAAR) has caused havoc in the minds of the foreign institutional investors, as indicated in the lower FII activity during the week. The government’s inability to carry forward reforms in the country has negated the investors’ sentiments and the same has been reflected by the markets.

The week started off on a positive note. However, on the last day it lost nearly 2 per cent. On the global front, Hang Seng and Shanghai gained 1.6 and 2.3 respectively over corporate earnings. This was also aided by the partially positive data from China. While Dow Jones remained flat, all the other global indices traded in the negative. Australia’s central bank has cut its growth forecast which also hurt investors’ sentiments. The US service industries’ data came below street expectations and has raised concerns over recovery in the US economy.

On the sectoral front, the auto index lost 4.78 per cent mainly due to the recent sales’ data posted by the auto companies. Tata Motors, Fiat, Ford and General Motors all posted decline in their April sales while Maruti Suzuki, M&M, Toyota and Honda Siel reported a rise in their sales’ numbers. In the two-wheeler space all the players posted between 4-6 per cent rise in sales with Honda posting a healthy 46 per cent increase. The total rise in auto sales was less than expected and hence the auto index has under-performed the broader indices. It may remain under pressure in the coming days.

The rate-sensitive banking index also reacted to the auto numbers. The index lost 3.43 per cent in the week. The power index continues to trade in the negative. The capital goods index lost over 5 per cent mainly due to BHEL which had to forgo a major order in Rajastan. This also impacted the index heavyweight L&T which lost 72 points or 6 per cent in the week. The teck and IT indices on the other hand gained over 2 per cent as the falling rupee will help the companies to post better results in the coming quarters.

State-owned MMTC emerged as the biggest gainer as the company is expecting to sign iron ore supply contracts with Japanese and Korean companies, including Posco, in the next month. The stock gained 13 per cent. United Phosphorus also gained nearly 10 per cent over talks that the company will buy back some of its shares at a premium to its current market price. It also reported its highest ever sales and other income. The shares of Godrej Consumers touched a new high after the company reported strong Q4 earnings.

As the dollar is getting expensive, the shares of TCS have surged by another 6 per cent in this week. The company has forecasted better guidance than its peers and with the ongoing currency fluctuations the markets expect the company to post better earrings for the June quarter. Meanwhile, pharma company, Ipca Lab, has gained 5.5 per cent as many brokerage houses came with a ‘buy’ rating on the stock. The analysts expect 30 per cent upside in the stock in one year’s time.

The shares of IRB slipped down by 23 per cent during the week. Most of that fall came in the last two days over a CBI inquiry of its promoters over an alleged murder probe. The shares of Manappuram Finance have touched a new low over the RBI regulations that will hurt its income. In conclusion, the falling rupee will hurt the earnings of India Inc. The UBS report says that the rupee will further slide to 56 per dollar which will be highly lethal to the growth of the country.