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RBI saves rupee; spooks mkts
Tue, 16 Jul 09:30 am

The major Asian stock markets have opened the day on a mixed note with Japan (up 0.6%) and Indonesia (up 0.4%) leading the gains. However, markets in China (down 0.7%) and South Korea (down 0.4%) are trading weak. The Indian equity market indices have opened the day on a weak note with stocks in the realty and banking space leading the losses. However, stocks in the software and FMCG sector were trading firm.

The Sensex today is down by around 271 points (1.4%), while the NSE-Nifty is down by around 91 points (1.5%). Mid and small cap stocks have also opened in the red with the BSE Mid Cap and BSE Small Cap indices down by around 1.4% and 0.7% respectively. The rupee is trading at Rs 59.35 to the US dollar.

Banking stocks have opened the day in the red with Oriental Bank and UCO Bank leading the losses. In order to rescue the rupee, the Reserve Bank of India (RBI) has effectively raised interest rates by raising the cost of borrowing for banks. The RBI has increased banks' cost of borrowing short term money through the Marginal Standing Facility (MSF) rate and Bank Rate each by 200 basis points (2 %) to 10.25 %. However, the policy rates have been kept unchanged. Thus, the window of borrowing for banks from it has been narrowed to just 1 % of deposits at Rs 750 bn. The move intends to restore stability to the foreign exchange market and make debt securities attractive for global investors. The measure will force banks to look for funds from markets and offer higher rates for depositors. Hence, interest rates on short-term borrowings, commercial papers, deposit rates and loans rates may go up 25-50 basis points (0.25% - 0.5%) in the next few weeks. The home and auto loans will also become expensive.

Auto stocks have opened the day mainly in the red with Ashok Leyland Ltd and Escorts Ltd leading the losses. As per a leading financial daily, Tata Motors has reported sales for the month of June 2013. The company's global sales for the month stood at 84,458 units, down 10.2% year on year (YoY). This includes the sales of Jaguar Land Rover (JLR). The global wholesales of all commercial vehicles were down by 13.2% YoY. The global wholesales of all passenger vehicles in June 2013 were down by 7.10%. The sales of Tata passenger vehicles also witnessed a decline of 31.2% YoY. However, the sales volumes of JLR were up by 8.3% YoY.

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