Sensex, rupee lose ground

By Oommen A. Ninan

MUMBAI, OCT. 8. Sentiment in the financial markets dipped today as the U.S. started air strikes on Afghanistan on Sunday. All markets - equities, foreign exchange and bond - witnessed volatile trading.

Even though equities recovered from their early losses, it closed weaker by 48 points as compared to its earlier close. Market players preferred to cut positions in expectation of a prolonged war in the region. Selling pressure was seen almost across the board and the mood in the market remained cautious.

The benchmark Bombay Stock Exchange 30-share sensitive index today opened at 2867.93, touched a high of 2784.09, declined to a low of 2718.41 and finally closed at 2765.37, losing 47.53 points from its previous close of 2812.90. On the National Stock Exchange, the S&P CNX Nifty index closed down at 901.95 against 914.60 (provisional).

Meanwhile, the rupee closed at a historic low of 48.125/135 a dollar as it came under renewed pressure. Banks bought dollars aggressively in anticipation of follow through dollar demand from corporates following the U.S. air strikes on Afghanistan. After opening lower at 48.05/07 against Friday's close of 48.005/015, it fell headlong to 48.22/24, during early session as dollar demand surged while supplies remained almost negligible. However, some State-run banks sold dollars at 48.22, chiefly at the behest of the central bank, which checked its further decline.

In the meantime, a statement from the Reserve Bank of India Governor, Dr. Bimal Jalan, also helped the domestic currency to partially regain its earlier losses. Dr. Jalan said the RBI would maintain order in the foreign exchange market and is ready to meet any temporary demand-supply imbalances.

``The rupee recovered to 48.12/13 as some of the banks, which were stung by the central bank's aggressive intervention on September 17, cautiously squared their long positions,'' said Mr. N. Subramanian, Forex Consultant, eMecklai.

``Nevertheless the much-anticipated air strikes on Afghanistan has sent the rupee to a new closing low of 48.1250/1350," he added.

Forward premiums hardened on aggressive paying pressure prompted by weaker spot rupee. The benchmark six-month premium rose to 6.34 per cent before easing a little to close at 6.31 per cent, 27 basis points above last week's close of 6.04 per cent.

The call money rates opened firmer at 7 to 7.25 per cent against Saturday's close of 6.75 to 6.95 per cent on customary demand for funds grew at the start of the new reporting cycle.

In the bond market, prices went down sharply in the morning by about 60 to 70 paise in the long dated securities (10 to 12 year Government securities). However, subsequent to the statement made by the RBI Governor indicating that softening bias towards interest rates would continue, sentiment in the bond market improved. The long dated papers recovered subsequently by 40 to 45 paise. ``In the next few days, assuming that the war does not touch the borders of India, sentiment should further improve on the back of increased expectations of a cut in the Bank Rate," said Mr. M. S. Annigeri, Executive Vice-President, ICICI Bank.

The two key parameters to be watched would be the international oil price and the rupee-dollar exchange rate. While OPEC is excepted to ensure adequate supplies of crude oil, any violence breaking out in the major oil producing countries could upset these calculations. Also, any sharp fall in the value of the rupee could weaken the bond market. ``However," said Mr. Annigeri, ``with the strong position of the country's foreign exchange reserves, the rupee is not expected to come in for a sharp depreciation." In short, if the war is confined to Afghanistan, the Indian market may not witness much of a shock.

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