The Indian Rupee seems to be in deep trouble having managed to survive the scare of crossing Rs 60 on RBI intervention. FII’s have turned sellers in not only debt but also equity. FII’s pressed net sales of Rs 5,030 crs in equity and Rs 7,040 crs in debt during the week. Domestic institutions were almost quits during the week but LIC whose data is not computed in SEBI data have invested over Rs 2,500 crs during the sharp fall that the markets witnessed. It would have been quite worse if they did not support the market.
Hindustan Unilever open offer has begun last Friday and if exercised in full would result into an inflow of Rs 29,000 crs. The parent has already brought in Rs 3,000 crs and the remaining money which is about $4.5 billion would happen as the open offer receives response. It seems everybody is backing on this saving the rupee and forgetting that just last week we saw an outflow of 2 billion dollars.
The depreciating rupee is advantageous for exporters. However over time it is seen that this is not necessarily the case and the pricing power for products not being there sees a reduction in prices by exporters. We as a nation need to protect margins and actually raise them if the depreciation of currency is to prove beneficial.
Crude oil prices and gold have fallen. Gold is at an almost three year low of below $1300 and augurs well for India. In India too prices of gold have once again fallen below the 27,000 mark and are likely to fall further. Gold prices are higher than when they broke the $ 1400 mark because of the rupee weakening and the increase in import duties which now stands at 8%.
The key takeaway from gold for India is that people are worried and one will not see the kind of buying of gold as we saw last time. There is fear this time around and people could actually panic if local prices in India fall below Rs 25,500. Incidentally silver has fallen below Rs 41,000 and one is seeing virtually no demand even though prices are low.
Coming to the markets, they would be driven by FII’s and it appears that their selling mood is unlikely to stop. There would be pressure on the markets and though some short term rally is likely simply because we fell too sharply, use it to exit.
Good times are still some time away. The good thing so far is that monsoons seem to be doing well and probably this could be the best bit of good news barring Uttrakhand in a long time for the country.
