While the money markets were shut on Thursday, on account of terror attacks in Mumbai, there was lukewarm response on Friday, with very low participation in the market, said dealers. However, the rupee seems to be under pressure due to the negative sentiment caused by the attacks.
Traders said volumes were muted and there was a strong anticipation that the Reserve Bank of India may slash rates late evening or on Saturday, in a bid to bolster investors? confidence.
The market also witnessed some traders selling bonds after India?s gross domestic product (GDP) growth data for July-September turned out to be higher than expected, said dealers. Data showed GDP grew 7.60% in July-September, compared to 7.90% during the previous quarter and 9.30% a year ago.
Bond yields were lower as the market expected a rate cut. The benchmark 10-year bond yield ended at 7.07%, off an intra-day trough of 7.04%, as against Wednesday?s close of 7.09%. ?There is a strong anticipation of a rate cut by 50-100 bps, on Saturday or else next week. If the central bank slashed rates by 50 bps, bond yields may touch 6.90/95 levels,? said NS Venkatesh, MD & CEO with IDBI Gilts.
However, Pranjul Bhandari, Tushar Poddar of Goldman Sachs reckons, ?Although the 2Q GDP data is stronger than expected, it does not capture the slowdown which has kicked into the second half of the year.? A series of weak data releases in IP, exports, Purchasing Managers Index and motor vehicle sales point towards much slower GDP growth from next quarter onwards. The larger-than-expected shock to the financial sector and its knock-on effects on both domestic and external demand is likely to slow growth next year as well, the report added.
Talking about the rupee, traders said weakening of the rupee against the dollar will continue as foreign institutional investors (FIIs) will continue to pull out capital due to global financial turmoil.
?There is a negative sentiment in the market, mainly on account of terror attacks. There should be active participation from Monday onwards. However, the Indian currency seems bearish at the moment as there is an active pull out of money by FIIs,? said Venkatesh.
Some custodial banks were seen buying dollars and there was also some month-end dollar demand from importers. Some PSBs were seen selling dollars around 49.90 in early trade. Rupee ended at 50.09/12 against the dollar, after touching a low of 50.20, but still 1.2% weaker than 49.48/50 Wednesday.
So far in 2008, foreign funds have withdrawn a net $13.8 billion from Indian shares, showing a decline of 21.3% in rupee. They had bought a record $17.4 billion last year. One-month offshore non-deliverable forward contracts were quoting at 51.12/27, weaker than the onshore spot rate, indicating a bearish outlook for the currency in the near term.
