Free Press Journal

Stocks hit 3-week low on trade war, rupee woes


A stock trader watches share prices on his screen at a brokerage house in Mumbai on July 26, 2018. Asian stocks mostly fell on July 26 as investor relief at US President Donald Trump and the European Commission chief's plan to ease trade tensions was offset by disappointing Wall Street earnings. / AFP PHOTO / INDRANIL MUKHERJEE

Indices may extend weakness as currency rout hurts investor sentiment.

Mumbai : Stock markets tanked more than 1 per cent to close at three-week low levels on Monday following a global slide in equities due to trade war concerns which also dragged the rupee to a record low of 72.67 in day trade.

The benchmark 30-share BSE Sensex closed at a three-week low of 37,922.17, down by 467.65 points or 1.22 per cent, which was its biggest single-day fall since March 16 when it lost 509.54 points.

The 50-share NSE Nifty also dropped below the 11,500-level by plunging 151 points or 1.30 per cent — its biggest single-day fall since February 6 — to close at 11,438.10, the lowest closing since August 16. Intra-day, it hit a low of 11,427.30.

Investor wealth eroded by Rs 1.96 lakh crore on Monday following the slump. The market valuation of BSE-listed companies plunged Rs 1,96,130.84 crore to Rs 1,55,43,657 crore at close of trade on Monday.

Negative leads from global markets as investors turned cautious amid fears of a possible escalation in the US-China trade conflict hit the market sentiment.

“Markets slid as fears of escalating US-China trade war dented the confidence. As a direct impact of rising crude oil price, widened current account deficit and strengthening dollar on account of a strong US job data, rupee succumbed to a new low and 10-year yield rose further,” Vinod Nair, Head of Research, Geojit Financial Services said.

US President Donald Trump on Friday threatened to slap tariffs on all Chinese imports, fanning fears of intensifying trade war between the two major economies and their ripple impact on emerging markets. Beijing also warned of retaliation if the US goes ahead with any new measures.

The Indian rupee has depreciated 13 per cent so far in 2018 and touched a historic low of Rs 72.67 to a dollar on Monday before a rebound on strong intervention of the Reserve Bank.

Benchmark indices are likely to extend weakness on Tuesday due to a fall in the rupee against the dollar, and fears of an escalating US-China trade war likely hurting investor sentiment towards emerging market stocks, said dealers.

“The continued weakening in the rupee and the recent trend of it hitting new lows (versus dollar) can lead to some foreign funds selling in domestic shares,” said a director at a mutual fund. Surging crude oil prices globally too had a rub-off effect on Indian stocks and rupee, market analysts said.

Meanwhile, India’s current account deficit (CAD) widened to $15.8 billion in April-June this year as against $15 billion in the same quarter of 2017-18 in value terms, mainly due to a higher trade deficit, according to RBI data released on Friday.

Sustained Re fall credit-negative for cos: Moody’s

MUMBAI: The free fall of the rupee against the dollar is credit negative for Indian companies, especially for those that generate revenue in rupees but rely on dollar debt to fund their operations and have substantial dollar-based expenses, Moody’s Investors Service said on Monday. “A sustained “weakening of the rupee would be credit negative for its rated Indian companies, particularly those that generate revenue in rupees but rely on the US dollar debt to fund their operations and have significant dollar-based costs, including capital expenses,”  Moody’s said.” “Nevertheless, most rated India-based corporates have protections in place, including  natural hedges, some dollar revenues and financial hedges, to limit the negative credit implications of a potential further 10 per cent weakening of the rupee from September 6 rate,” Moody’s Vice President Annalisa  D’Chiara said.

Of the 24 Moody’s-rated India-based corporates across the high-yield and investment-grade categories, 12 generate most of their revenue in dollars or have contracts priced in the greenback.  providing a natural hedge, and thus limiting the effect a weakening in the rupee could have on their cash flows, it said.

“Furthermore, the impact of the rupee’s weakening will be diverse and will also depend on  issues such as a particular corporate’s reliance on exports, its cost base, and its  exposure to pricing on international markets,” she added.

The 24 corporates rated by Moody’s include those in the IT, oil and gas, chemicals, automobiles, commodities, steel and real estate sectors.  According to the agency, weaker credit metrics under a scenario of a further 10 per cent drop in the value of the rupee, from the rate on September 6, can be accommodated in the companies’ current rating levels.