Week Marked By A Sharp Fall In Markets

The Indian markets witnessed a sharp fall this week and closed the week in red. The Sensex and the Nifty closed the week declining by 2.11% and 2.42% respectively.

The other factor that had played its part in this fall is the depreciating rupee. The rupee has touched an all-time low of Rs 60/USD. The exit of FIIs and the news of the Fed cutting on the quantitative easing (QE) have had a highly negative impact on the national currency. The rupee, this year, touched the level of 60 against the USD and has depreciated over 9%. On April 4, 2013, it stood at 52.97 against the dollar from where it fell by more than 13%. There is a combination of factors - widening current account deficit (CAD), a huge rise in gold imports, capital outflows and the possibility of the termination of the QE - that have led to this downfall of the rupee.

In line with the Finance Minister’s recent statement to work in the direction of attracting Foreign Direct Investments (FDIs), the government recently cleared 16 FDI proposals worth Rs 1646.875 crore. These proposals were recommended by the Foreign Investment Promotion Board (FIPB) in its May 10, 2013 meeting. A total of 27 proposals had come for government approval, out of which 8 have been deferred and 1 proposal belonging to Punj Lloyd regarding the denial of security clearance has been kept in abeyance. Two other proposals were not within the purview of the FIPB.

On the global front, Shinzo Abe, Japan’s new Prime Minister has brought in a wave of changes with his newly framed policies. Popularly termed as 'Abenomics', his policies have seen the Japan GDP rising by 4.1% in the January to March 2013 quarter against the originally reported rise of 3.5%. Abe's strategy includes policies that will boost the economic growth of the country and raise the rate of inflation to 2%. The Yen has also depreciated to USD 94 against the US dollar.

Following these developments, the Bank of Japan (BOJ) has promised a massive quantitative easing programme which will see the BoJ buying bonds worth USD 1.4 trillion. According to the plan, it will purchase bonds worth USD 70 billion every month.

Further, the Mahindra Group recently announced a global alliance agreement between its automotive component businesses and Spain’s CIE Automotive SA. The combined entity will have annual sales of approximately USD 3 billion (Rs 15,000 crore) with operations in North America, South America, Europe and Asia. As per the transaction, there will be a cross holding of shares through a swap. Mahindra will hold 13.5% stake in CIE Automotive making it the second largest stakeholder in CIE. At the same time, CIE will acquire 51% stake in the combined entity called Mahindra CIE Automotive. This entity will continue to operate the current Systech automotive component businesses globally and include CIE’s European forgings operations.

Money inflows from the FIIs remained subdued this week. FIIs sold equities worth Rs 2396 crore during the week. DIIs ended the week in red selling equities worth Rs 481 crore.

With the June 2013 F&O expiry due next week, there will be some volatility in the markets. But we feel that the sharp fall in the markets will make a few counters quite attractive and thus some selective buying cannot be ruled out.