Mumbai, Sept. 20: Financial markets overcame fears over Standard & Poor’s (S&P) downgrade to recover from initial lows as the feeling sunk in that the blow will leave foreign investment unaffected but hasten selloff.
Stocks, rupee and government securities recouped losses. Dalal Street finished a shade below its previous close, while the rupee ended largely unchanged over Thursday.
Most players said concerns raised by the rating agency on fiscal deficit and public debt were nothing new. A senior official from a private sector bank saw it as a pressure tactic to force the pace of divestment programme.
Since the downgrade was only on local currency debt — a market that has been largely dominated by domestic investors — any adverse impact would be limited in scope, brokers and senior bank executives reckon.
There were others, a smaller band of market mavens, who see the move as a lesson to the government, which should immediately get its act together on disinvestment and a hike in FDI limits in key industries.
Stocks edged up later in the day amid speculation that Prime Minister Atal Bihari Vajpayee will call an emergency Cabinet meeting to discuss the issue of PSU sales.
This triggered fresh buying in technology shares, helping the Bombay Stock Exchange (BSE) sensex to wipe out part of early losses. The 30-share index bounced back 31 points from its intra-day low, but still closed with a 15.95-point loss at 3024.35. It had opened sharply lower at 3010.14 and slipped below the crucial 3000-mark.
Some PSU counters that showed gains included HPCL and BPCL, apart from infotech majors like Infosys. However, Zee Telefilms finished at a 11-month low.
In the forex market, the rupee began on a weak note, but overcame losses caused by dollar sales of nationalised banks. Starting at 48.47/48 per dollar, it ended 48.41/42 per dollar, almost unchanged over Thursday’s 48.41/41.
The Reserve Bank fixed the reference rate for the dollar higher at Rs 48.4500 against Rs 48.34. British pound was also set higher at Rs 75.2453 compared with Rs 75.0123. On the other hand, the reference for the Japanese yen (100) was fixed lower at Rs 39.4600 from Thursday’s Rs 39.7600.
Government security prices also displayed a similar trend. Yield on the benchmark 10-year paper shot up to 7.20 per cent from 7.16 per cent on Thursday. In late deals, it fell to 7.17 per cent. Market watchers attribute the rise in gilt prices to statements by finance secretary S. Narayan that the rating would not hamper economic growth or affect the government’s borrowings.
Debt market analysts expect gilt prices to remain range-bound over the next few days with activity expected to pick up as the monetary and credit policy draws to a close.