Return
to Story Page
To print: Select File and then Print from your
browser's menu
Team FE
Mumbai, Aug 10: Tranquillity in the financial markets has once again been disturbed with the shooting down of a Pakistani naval anti-submarine and reconnaissance aircraft when it intruded 10 km into Indian airspace near Rann of Kutch, Gujarat. The first signs of nervousness were visible in the fall in the prices of Government securities. Since the news hit the stock market and the forex market after the day's trading, the impact is expected to be felt on Wednesday when trading resumes.
Though the Sensex shed 45 points on Tuesday, market players expect the Sensex to open on the lower side. The catch is the large net outstanding position of Rs 2,100 crore on the BSE. The shooting-down incident will provide a trigger for operators to unwind the position.
``With net outstandings of this magnitude, it was not possible for the market to go up anyway. And with some adverse news coming in, the market can only go down from the present level,'' said Rajiv Sampat at Parag Parikh Financial Advisory Services. And selling would mainly come from the operators, the brokers feel. ``Speculators are likely to book profit early during the trading session and reduce their position,'' says Shyam Bhat, fund manager at Tata AMC.
According to Bhat, FIIs and FIs are likely to wait-and-watch before taking a plunge into the market. According to Chirag Sangvi at Asit C Mehta Investment Intermediaries, Wednesday's market sentiment would mainly be driven by the developments in Indo-Pak relations and the FII investments, as the market is placed in a nervous zone.
The GDR markets were down 3 per cent at 7 pm. ``It appears that the overseas markets have taken the news of India shooting down a Pak naval aircraft seriously,'' said a dealer with a city-based broking house. The news pulled down the prices of Government securities late on Tuesday even as the rupee closed at 43.42/43 against the dollar, losing marginally over Monday's close of 43.40/41. The six-month annualised forward premium ended at 4.90 per cent, against Monday's 4.65 per cent.
The foreign exchange and Government securities market are seen going into a tizzy on Wednesday. The rupee is seen opening lower at 43.50 levels. Credit Lyonnais vice-president (foreign exchange), A Jayaram, said: "The rupee will be under pressure in early trades, but it will not go into a free fall. Overnight developments will also have to be watched for." Dealers said that bond prices which had been weak on high call money rates, profit-taking sales and volatility in the currency market, weakened further after the news. Prices of some long bonds fell by some 30 paise.
"The news of the Pakistani plane being shot down is a further blow to sentiment," said a primary dealer. The 11.99 per cent 2009 was dealt lower at Rs 102.30, against Rs 102.65 earlier; 12.50 per cent 2004 at Rs 105.25 (Rs 105.40) and the 12.32 per cent 2016 at Rs 103.43 (Rs 103.73). "Traders were already nervous because of the high call money rates and the movements in the currency market," the dealer said. Call money has traded above 9 per cent this week, compared with around 8 per cent through most of last week after outflows towards a 10-year Government bond auction and the central bank's open market operations. On Monday, the rupee had tested its current fiscal's low of 43.5850/5950 against the dollar, before recovering to close at 43.40/41 on the back of State Bank's dollar sales.
"The rupee will definitely come under pressure. The first half hour will be critical," Mecklai Financial Services' senior vice-president KN Dey said. PH Ravikumar of ICICI Bank, however, said the rupee will remain stable for the time being. "There could be volatility in the market but the rupee may not depreciate (against the dollar) till end-September," Ravikumar said.
The rupee fell to a low of 43.5850/5950 on Monday as corporate and inter-bank demand for dollars coupled with long-dollar positions built up over the weekend.
Outflows of Rs 5,000 crore last week on account of the Reserve Bank's auction of the 11.99 per cent 2009 and the mopup of Rs 2,000 crore via the RBI's open market operations have kept call rates over 9 per cent. Bond prices have not rallied this week and trading sentiment has been subdued. Dealers expect GoI-Sec prices to fall further on Wednesday.
Corporates keep fingers crossed
There were mixed reactions from corporate India to the shooting down of a Pakistani aircraft by the Indian Air Force combat planes. While industry was clear on the need for according top priority to national security, there is underlying apprehension on the impact of a war-like situation on the pace of industrial recovery.
Says S Kumar Synfabs managing director, Nitin Kasliwal, "Let us hope that this is a stray incident. If it results in a war-like situation, it will have a dampening effect on corporates". The president of the Indian Drug Manufacturers' Association (IDMA), Dr GG Nair said, "We could be headed for an emergency-like situation. The focus should be on national security rather than politics. And yes, if it takes a Kargil tax, we must be ready to sacrifice something in national interest." On whether polls at this juncture were necessary, Heinz managing director, Pradeep Poddar said, "Why shouldn't we have elections. I think we as a nation have achieved maturity in terms of delinking the economic situation from the political situation. This has augured well for business in general, even at a time when there is a recession."
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------