Robust recovery on relief hope
Stocks ended higher on Wednesday, snapping two sessions of declines, after the rupee recovered sharply following reports that Prime Minister Narendra Modi will review the economic situation over the weekend and that a rate hike is not ruled out.
- Published 13.09.18
Mumbai/New Delhi: Stocks ended higher on Wednesday, snapping two sessions of declines, after the rupee recovered sharply following reports that Prime Minister Narendra Modi will review the economic situation over the weekend and that a rate hike is not ruled out.
The rupee gained the most in more than a year after touching a lifetime low of 72.91 to the dollar in intra-day trades on Wednesday. The Indian currency later closed at 72.18 - a huge gain of 51 paise to the greenback.
The rupee recovery triggered a rally in stock markets and the Sensex gained 304.83 points to close at 37717.96. Bond prices, which had been under pressure in recent times, also took a break with yields on the benchmark 10-year security dipping to 8.13 per cent against the previous close of 8.18 per cent.
The gain in forex, stock and bond markets was also helped by economic affairs secretary Subhash Chandra Garg who said that the government and the Reserve Bank of India (RBI) will do "everything" to ensure that the rupee does not slide to unreasonable levels.
According to North Block officials, the agenda for the weekend stock-taking meeting has not been fixed yet.
However, they expect a series of measures could be discussed to cut imports and shore up the rupee.
While earlier attempts by the finance ministry to talk up the beleaguered rupee did not yield results, Garg's statement and the expectations surrounding Prime Minister's review meeting led to the unwinding of long dollar positions by exporters.
According to a PTI report, finance minister Arun Jaitley, NITI Aayog vice-chairman Rajiv Kumar, PMEAC chairman Bibek Debroy and finance secretary Hasmukh Adhia are among the officials who are likely to attend the meeting, which is scheduled to be held on Saturday.
While the structure of the meeting is not known, sources said it might review macroeconomic indicators, government finances and the implementation of flagship financial inclusion and other development schemes.
Besides having an impact on the current account deficit, a falling rupee has made imports costlier and led to petrol and diesel prices skyrocketing to record highs.
In India's case since much of what it imports are either necessities such as crude and coal or influenced by cultural factors such as gold, it is difficult to slash imports.
The finance ministry has ruled out any cut in taxes on fuel to ease the burden on consumers, saying it does not have the bandwidth to lose any revenue without developmental spending being cut. The government can ill-afford this in an election year.
Market observers said intervention by the Reserve Bank of India also helped in the rupee recovery on Wednesday.
The domestic currency, which opened weak at 72.75 to the greenback, seemed poised to breach the 73-mark as it quickly fell to a record intra-day low of 72.91. However, late afternoon it staged a smart recovery and ended at 72.18 - a gain of 51 paise to its previous close.
Helped by the positive cues from the forex market, the BSE Sensex, which opened in the green at 37546.42, surged in late afternoon trade to finish higher by 304.83 points at 37,717.96. The broader NSE Nifty, too, jumped 82.40 points to end at 11369.90. The 30-share Sensex had lost about 977 points in the previous two sessions as global trade war tensions affected sentiment.
"The FMCG sector which fell almost 10 per cent in the last eight sessions saw sharp recovery from lower levels on Wednesday and is likely to continue with the good run in the next session as well," V.K. Sharma of HDFC Securities said.
While the markets will be clsoed for trading on Thursday on account of Ganesh Chaturthi, observers feel that the focus will now be on the steps that the Centre and the RBI may announce.