More bloodbath likely in Indian stocks, currency

The simultaneous fall in Indian currency and the stocks for the second consecutive day have fuelled speculation among market circles that the currency could plunge to 75 as early as this week and this could fuel a further sell-off on stock markets.

The benchmark BSE Sensex closed 792.17 points or 2.25 per cent lower yesterday at 34,376.99. The NSE Nifty closed at 10,316.45, down 282.80 points or 2.67 per cent. All sectoral indices, barring the Nifty IT index, closed in the red.

The rupee is down close to 14 per cent year to date. The fall has been attributed to global and domestic cues such as monetary policy tightening in the US resulting in dollar strength and subsequent withdrawal of foreign portfolio investments, along with the rising price of crude oil.

Additionally, a weak trade position with a bulging current account deficit (CAD or the difference in the value of exports and imports) has made rupee’s position further precarious. CAD in the first quarter of this fiscal widened to $15.8 billion.

Analysts see a further grim outlook for the rupee and Indian stocks. “Trend is likely to be negative at least in the near-term till the financial market stabilises. Key data like bond yield, INR, oil prices, liquidity and equity valuation has to normalise which may take some more time,” said Vinod Nair, Head of Research, Geojit Financial Service.