Just Hope Its A Mildly Negative Day

There is no stopping the rupee from falling and consequently the markets from going down the dumps. At above Rs 64 to a dollar, the rupee today is one of the worst enemies of the markets. The reason why I am forced to use such harsh words for the rupee early morning are quite evident in the way it was instrumental in pulling down the markets yesterday.

From a sober beginning which looked like a reversal of the negative trend, the markets slipped in the post lunch session after the rupee breached the psychological level of Rs 64 to a dollar. Mind you, it were to be okay if it were a mild slip from where they could recover once again. But the way the markets went downhill, one can only but worry as to where on earth would be the bottom for it?

Right now the markets are focusing only on bottoms – whether for the rupee or for the markets. All, meaning literally each and every measure that is being initiated by the RBI and the government is only leading to an even steeper fall of the rupee instead of helping it stabilize. The going is truly getting tougher by the day for investors.

There is nothing that is coming their way which could make them smile even momentarily in the present circumstances. Even developments abroad have been on the negative side as far as we are concerned. In fact much of the pain that is being inflicted on the markets by a declining rupee have initiated abroad. The minutes of the Fed meeting released yesterday have not been very explicit in when it would taper off its bond buying, but have certainly made a reference to its readiness to do so.

The European markets which have been closely tracking developments in the US for quite some time now traded lower yesterday waiting for the minutes that were to be released. The beginning of the taper as early as September instead of December, has been keeping markets in the European region nervous. The move from a stimulus propelled market to a fundamental based market will be a very painful one. Given the growth prospects of a economically beleaguered Europe the commencement of the taper which is bound to suck out liquidity does not sound to be a good idea for the markets.

In the US too, the markets factored in the Fed’s expected action on the phasing out of the bond buying. They went the same way as Indian stocks to gain strength after a weak performance on the preceding day, but sank deeper as the day proceeded. With the Fed having signaled in its minutes that it was well on course to taper its bond buying exercise so far as the economy kept on growing at a steady pace sent an already jittery market into a tailspin.

The gloom set in by the Federal Reserves’ stand that it was committed at tapering the bond buying as the US economy continues to recover will cast its shadow on the Asian markets for the fifth straight day today. The initial indications are already in place on what will happen in Asia for today. Japan, Hong Kong and Singapore, the three main Asian markets are already trading decisively in the red. Except for China, there is no hint of a green tick anywhere in Asia this morning. Taiwan, Korea, Malaysia and Indonesia are all down by an average percent. The SGX Nifty which is the closest barometer of gauging what the Indian markets are likely to do this morning is looking bad. Even as we give you the first hints of what could happen today, that Index is trading down by a whopping 50 odd points.

It therefore will not take much to figure out the expected behavior of the markets for today. Like the whole of the week so far, brace yourself for a negative open and a highly volatile trading day. Do not expect much on the part of the RBI on the currency front. it has done whatever it can until now but has met with very little success. This is probably why the Governor designate is shifting focus and talking about new bank licenses rather than the rupee, its fall and the measures to contain the fall.