Rupee slide continues, equities plummet

BL Mumbai Bureau | | Updated on: May 19, 2022

The Rupee ended the day at an all-time closing low of 77.72 per dollar

The rupee sank to a record closing low on Thursday as foreign portfolio investors continued to cut their investments in Indian equities while the dollar gained strength against major currencies and demand for the greenback from importers. Benchmark equity market indices also closed lower by more than 2 per cent on Thursday amid a heavy sell-off.

The Rupee ended the day at an all-time closing low of 77.72 per dollar, down from its previous close of 77.58. 

Though the Indian unit closed at a record low, it moved in a tight band of about 10 paise (77.64 to 77.74), indicating the Reserve Bank of India was intervening in the market, not allowing the rupee to breach 77.75 mark. 

IFA Global, in a report, noted that the USD-INR pair ended slightly higher, tracking a sell-off from domestic indices as the global risk-off mood, along with the prospects for a more aggressive policy tightening by the Fed supported safe-haven demand. 

However, the US dollar edged slightly lower, handing back some of the previous session’s gains, although the greenback remained in demand with risk sentiment fragile.

Equity markets slump

The bear market in US tech stocks is now spreading far and wide and everything from the slowing growth to Covid-19 lockdown in China, rapidly soaring inflation, and tightening monetary policy is making stock traders nervous. The share markets across the world witnessed a steep fall after an overnight 5 per cent crash in the tech-heavy Nasdaq index on Wednesday.Sensex and Nifty declined by 2.6 per cent and were trading near the low levels seen in February. The Sensex fell 1416 points to close at 52792 and the Nifty index declined by 430 points to close at 15809. 

As per stock exchange figures, foreign portfolio investors have sold equities worth ₹42,836 crore in the cash market during this month so far. In the derivative markets this month so far, FPIs made net purchases to the tune of ₹5,988 crore in the stock futures segment and were net sellers of 4,083 crore in the index futures. 

“US markets are witnessing a brutal fall. The Indian markets are mainly holding up as the SIP (systematic investment plan) related flows into the domestic mutual funds are still robust. So retail investors in India are holding up the markets from a meltdown. But the question is how long they can do that since any trigger for a sharp up move seems to have evaporated, “said Rohit Srivastava, strategist, IndiaCharts. Srivastava is of the view that bear markets can see the indices retrace up to 61 per cent of their lifetime high levels. “Nifty’s 61 per cent retracement bottom from its lifetime high level of 18,600 is somewhere around 11,200 levels. But one needs to wait and watch for now where the index takes a turn and FPI selling halts, “Srivastava said. 

The Nifty and Sensex are down by around 15 per cent currently from their peak levels. Daily market moves will not depend on the US markets, experts say.

India’s wholesale price index has touched 15 per cent while retail inflation is still below 8 per cent. The rupee, at 77.73, hit an annual high against the US dollar. Experts say that everything depends on where the US Federal Reserve key interest rates are headed. As of now it is anticipated that the Fed will again raise rates by 50 basis points in June. RBI too is expected to hike rates by another 40 bps in its next meeting. Rising interest rates can hurt corporate profits if their borrowings are more and it sucks out liquidity from the stock and commodity markets. Inflation has been on a boil due to rising global crude oil prices. 

Published on May 19, 2022
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