Recovery in Rupee brings back the lost smile among market participants... - Ajcon Global

The Nifty ended up 2.66 percent, propelled by lenders such as HDFC Bank, which surged after new steps outlined by Rajan that included increasing overseas borrowing limits for banks. The BSE Sensex rose 2.22 percent. The new measures to prop up the rupee included providing exporters and importers more flexibility in hedging their forward currency contracts, as trading firms had long complained about regulation that left them unable to quickly cope with rapid currency movements. Big surge was seen in banking stocks today as the BSE Bankex rallied more than 9 percent after RBI announced measures which will ease liquidity. RBI has raised overseas borrowing limit of banks from 50 to 100 percent of their tier 1 capital and swap it with RBI 1 percent below markets rates. It has also allowed banks to swap their FCNR deposits with the RBI at 2 percentage points below market rate. The rally in Axis Bank was also because of Reserve Bank of India (RBI) withdrew curbs on foreign equity investment in the bank. Among others, ITC , HDFC , Larsen & Toubro, ONGC , Coal India and BHEL jumped 4-8 percent whereas SesaGoa shares lost over 4 percent. Technology stocks remained under pressure throughout the session with the IT Index falling 3 percent on rupee appreciation. Top software services exporters TCS and Infosys were down more than 3 percent.

The rupee rallied and shares surged on Thursday after the Reserve Bank of India (RBI) chief unveiled measures to support the ailing currency, providing a shot of confidence for investors unnerved by the country's worst economic crisis in two decades. However, amid the euphoria over RBI Governor Raghuram Rajan's energetic Wednesday debut, investors warned he cannot by himself repair an economy mired by slowing growth and a record high current account deficit that has helped fuel a drop in the rupee of as much as 20 percent this year. Rajan faces pressure from investors to roll-back the central bank's controversial steps to defend the rupee by draining cash from the market and raising short-term interest rates at a time when investors are clamouring for ways to boost growth. The government has struggled to push through politically tough reforms needed to fix the economy, and elections due by next May raise the prospect of expensive populist spending that could threaten the country's sovereign credit rating, which is one notch above junk status. On Thursday, however, scepticism was trumped by euphoria over Rajan, a prominent former chief economist at the International Monetary Fund, who unexpectedly unveiled a flurry of proposals in his first day at the helm of the central bank. The rupee rose as much as 2.3 percent to 65.53 per dollar, well off the record low 68.85 hit on August 28, when it was down more than 23 percent from its 2013 peak. The Indian unit was trading at 66.12 per dollar at 1604 IST.

Rajan faces difficult decisions ahead, including navigating uncertain global conditions marked by rising military tension over Syria, which is pushing up India's oil import bill, and the prospect of an end to U.S. monetary stimulus. The RBI has been the main line of defence against the rupee so far, with previous Governor Duvvuri Subbarao having opted to sacrifice near-term economic growth, putting interest rate cuts on hold in a quest for financial stability. With economic growth remaining weak, investors are already clamouring for the RBI to change course.

Asia's third-largest economy is suffering from sluggish investment as well as slowdowns in the manufacturing and services sectors. Investors have expressed little faith that New Delhi can push through substantial reforms, such as a hike in subsidised fuel prices, that could help revive confidence in the economy. Measures the government has passed, including curbs to gold imports and opening up sectors for foreign investments, have been dismissed as too small or not helpful enough by markets. The Lok Sabha approved changes aimed at luring foreign asset managers to run retirement funds on Wednesday, but foreign firms say the new law is unlikely to immediately trigger a flood of investment. The rupee is by far the biggest decliner among the Asian countries tracked by Reuters, even more than the 13 percent fall in the Indonesian rupiah, a country also suffering from a current account deficit and concerns about economic growth. Economists say the government will ultimately need to step in to provide more long-lasting support for the rupee.

Globally, a divided US Senate Foreign Relations Committee on Wednesday approved a resolution authorizing the use of military force in Syria by a vote of 10-7, with one senator merely voting "present." The panel's action clears the way for a vote on the resolution in the full Democratic-controlled Senate, likely next week. The Republican-led House of Representatives must also pass a version of the measure before it can be sent to President Barack Obama for his signature. Obama is asking Congress to back his call for limited US strikes on Syria to punish President Bashar al-Assad for his suspected use of chemical weapons against civilians. Before approving the measure, the senators voted for amendments to more clearly define the military activity being authorized. The measure approved by the panel is narrower than a proposed version that Obama sent to Congress for its approval.

Source : Equity Bulls

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