Volatility Grips Stock, Fx Markets

Updated: Sep 19 2003, 05:30am hrs
Sensex Dives 101 Pts On Heavy Selling
Our Markets Bureau
Mumbai, Sept 18: Nervousness continued to grip bourses on Thursday, a week ahead of the expiry of September futures and options (F&O) contracts. Amidst huge volatility, benchmark indices witnessed a fall in excess of two per cent following across-the-board selling by a cross-section of investors.

The top 200 stocks on The Stock Exchange, Mumbai (BSE) together lost Rs 22,270 crore in their market capitalisation (M-Cap) on Thursday, with the benchmark 30-share sensitive index (Sensex) plummeting 101.20 points or 2.39 per cent to close at 4,134.15. The S&P CNX Nifty nosedived by 39.25 points or 2.93 per cent to end the day at 1,302.35 points. The FE FEfty also nosedived by 49.14 points or 3.16 per cent to close the day at 1507.72.

Markets have been extremely volatile in the past few trading sessions.

In the last nine trading days, the Sensex has plunged 300 points or 6.77 per cent. The S&P CNX Nifty plummeted by 115 points or 8.11 per cent to close at 1,302.35 points during the same period while the BSE-PSU index has lost heavily by 410 points or 13.52 per cent to close at 2,621.94 points as compared to 3,031.71 level on September 8, 2003.

The fear among market players intensified following rumours in the market that a final verdict on the Ayodhya case may come anytime now. Selling across the board, on account of the last day of settlement in the futures and options segment next Thursday, kept the markets edgy on Thursday as there was squaring up of cash positions. However, the only solace for the market was that foreign institutional investors (FIIs) still continued as buyers and were net buyers to the tune of Rs 298.60 crore on Wednesday, dealers said.

Sharad Shukla, head, investment advisory services, IL&FS Investsmart said, Since the 1,500 points rally in the last three months, a correction was long overdue and it is healthy for the markets. We are likely to see a further correction till we reach the 4,000 level before we see the upward movement resuming. Todays fall was widespread, although there is no negative news on the fundamentals.

Mr Shukla said, The fact that overseas corporate bodies are no longer permitted to make fresh investments under foreign direct investment and the NRE deposit rates being reduced, will lead to stability in the exchange rate. This would help Indian software exporters, who were getting hurt badly due to the appreciating rupee.

According to dealers, the markets would be extremely choppy till next Thursday which is the last day of settlement in the F&O segment. Among the major losers were Reliance Industries, Infosys Technologies, ACC, Tata Motors, Tisco, BSES, State Bank of India and Gujarat Ambuja Cements.

Cement stocks plunged on Thursday on expectations that results of July-September quarter would be hit by a steep decline in prices in the southern and western regions. Market analysts are of the view that software stocks which were down in the morning regained later in the day as the Reserve Bank of India (RBI) has taken steps to curb the appreciation of the rupee.

Rahul Rege, head of sales, SSKI, said, Today almost all sectors showed signs of nervousness including cement, automobile, pharmaceuticals and banking, barring the information technology sector. The next ten days, till the expiry of F&O for the current month, the markets will remain choppy.

Re Dips To 46.07, Forwards Harden
Our Banking Bureau

Mumbai, Sept 18: The rupee was seen at 45.9750/ 9850 per dollar at close of Thursdays trades, which saw the rupee plummeting to 46.07/08 on heavy dollar buying interest.

The Reserve Bank of India (RBI) had to intervene in the spot-market to prevent the rupee from slipping further against the dollar. The central bank through the state-owned banks sold dollars heavily at different levels to support the rupee. Dollar inflows were thin.

Forward premiums also tightened following the pressure on the rupee. The six-month annualised premium closed higher at 1.14 per cent as against its previous level of 1.01 per cent with one-year annualised premium closing at 1.30 per cent (1.08 per cent).

FE on Thursday reported that major corporates were rushing to cover their short positions in the forex market to the tune of a hefty $10-billion or thereabouts. Far forwards are also set to harden.

There were cancellations of forward contracts by exporters on apprehensions of dollar shortage in the market, triggering the sharp rupee fall.

Quite a few exporters cancelled their contracts on apprehension of dollar shortage in the last date of September. This is because exporters as well as the RBI have been rolling over dollars, said IDBI Bank head (forex and money markets) U Venkataraman. However, the RBI has always maintained that whenever there was dollar shortage in the system, it would supply dollars, he added.

The rupee opened the day weaker at 45.95/97 compared with the overnight level of 45.945/955. Then came the dollar-buying pressure which pushed the rupee to its intra-day low. Dollar selling by state-owned banks helped the rupee to recover smartly. Exporters were also seen selling fresh dollars later in the day.

The buying interest was really heavy, said Development Credit Bank chief forex dealer Paresh Nayar. State-owned banks sold dollars at various levels. First they sold dollars at the 46.01 level, then at 46.0350. Still, the rupee could not be prevented from touching the 46.07/08 level, Mr Nayar said.

An estimation showed that there was dollar buying to the tune of around $300 million on Thursday. The pressure on rupee also triggered stop-loss positions in some banks. Quite a few foreign banks were also seen covering their short-dollar position.

There was tightness in the forward segment of the market. Premiums rose, especially at the longer-ends, with banks reversing their buy-sell swap positions following the export cancellations. Banks used to do buy-sell swap to cover exporters forward purchases.

Overall sentiment remained cautious ahead of the redemption of the Resurgent India Bonds.