Global trade war tension leads to mayhem in stock market, poses serious concern
The Indian Rupee continued to make a fresh low on daily basis against the backdrop of rising fuel prices, capital outflow and global trade war tension leading to mayhem in the stock market and posing serious concern for the fundamental of the economy. After opening in positive territory on Tuesday morning and touching of 72.25 versus the dollar, the Rupee plummeted 24 paise to end at a new record low of 72.74. However, the Reserve Bank of India (RBI) intervention led to some recovery.
Petrol and diesel prices hit fresh highs on Tuesday. A 14 paisa per litre hike in petrol and diesel prices each took the rates to an all-time high. While some States have marginally reduced VAT to provide symbolic relief to consumers, but it is too little to make any difference in view of the massive rise over the last few days in fuel prices.
Petrol price in Delhi climbed to Rs 80.87 per litre, while in Mumbai it inched up to Rs 88.26. A litre of diesel in the national Capital was priced at Rs 72.97 and Rs 77.47 in Mumbai. Delhi has the cheapest fuel among all metros and most State capitals because of lower taxes. Mumbai has the highest sales tax or VAT. Petrol in Chennai costs Rs 84.07 per litre and Rs 83.75 in Kolkata. Diesel is priced at Rs 77.15 per litre in Chennai and Rs 75.82 in Kolkata.
While the Government has ruled out any excise duty cut to contain the rise of fuel prices, it may be forced to come out with NRI bond, as was done in 2013, to deal with the falling Rupee.
The Rupee is facing twin problems. First the rise in fuel prices, second, the strengthening of the US dollar on the back of a strong jobs report and expectations of a rate hike from the Federal Reserve this month.
The Rupee has also come under pressure from huge portfolio liquidation pressure from foreign investors.
The political uncertainty about 2019 general elections have also been acting as a dampener on forex market sentiments. Foreign investors withdrew close to Rs 2,300 crore from the capital markets since Monday.
There are concerns that Rupee could come under fresh pressure on Wednesday as the Brent crude was trading at 78.60 dollar a barrel at the time of writing this report late in the evening. The previous closing was 77.12 dollar per barrel. The fate of Rupee will also depend on the upcoming release of- industrial production data along with CPI and WPI inflation numbers.
The crude prices are surging as the US sanctions has squeezed Iranian crude exports, resulting in tighter global supply despite efforts by Washington to get other producers to increase output.
At the forex market, the rupee resumed higher at 72.30 from overnight finish of 72.45 on the back of adequate dollar liquidity. After scaling a high of 72.25 in early trade, it quickly reversed the knee-jerk gains and tumbled to a historic low of 72.74, triggering central bank intervention.
The crash of Rupee also led to a collapse at the stock market with benchmark sensex losing 509 points to close at more than one-month low of 37,413.13 due to heavy selling in FMCG, metal, auto and financial stocks. The 30-share index tanked more than 1 per cent for the second day, shedding around 1,000 point in just two days.
This is the weakest closing of Sensex since August 2 when it had ended at 37,165.16. It had lost 467.65 points in the previous day. The 50-share NSE Nifty cracked below the 11,300-mark by falling 150.60 points or 1.32 per cent at 11,287.50. Intra-day, it shuttled between 11,479.40 and 11,274.
Of the Sensex constituents, Tata Steel recorded the biggest fall of 3.46 per cent, followed by PowerGrid at 3.21 per cent. FMCG stocks also took a hit owing to weak market sentiment and stretched valuation. ITC dropped 2.92 per cent while Hindustan Unilever fell 1.19 per cent.
Auto stocks were also down as Hero MotoCorp and Tata Motors dropped more than 3 per cent. Maruti fell 1.56 per cent and Bajaj Auto by 1.24 per cent. HDFC twins also suffered losses with HDFC Bank losing more than 2 per cent and HDFC by 0.68 per cent.
Bharti Airtel, Yes Bank, ICICI Bank, Adani Ports, Kotak Bank, TCS, Vedanta Ltd, RIL, Sun Pharma, SBI, L&T, ONGC, Wipro, IndusInd Bank and Axis Bank fell up to 3 per cent.
Index may have lost just around 4.5 per cent during the last ten days, but several blue chips stocks have fallen by as much as 20 per cent. Bank Nifty has taken the biggest hit by losing a massive 1,600 points from its peak to close at 26,807 points.