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Indian Share Markets End Lower; Metal Stocks Top Losers
Thu, 16 Aug Closing

Indian share markets settled lower today led by a fall in the financial stocks after the rupee hit a record low of 70.32 per dollar. At the closing bell, BSE Sensex ended down by 188 points, while, NSE Nifty ended down by 50 points.

Except healthcare stocks, IT stocks and automobile stocks, all sectoral indices ended the day in red with metal stocks and capital goods' stocks leading the losers.

Globally, Asian stock markets finished lower today with shares in Hong Kong leading the region. The Hang Seng is down 0.8% while China's Shanghai Composite is off 0.7% and Japan's Nikkei 225 is lower by 0.1%. European markets are higher today with shares in London leading the region. The FTSE 100 is up 0.6% while France's CAC 40 is up 0.5% and Germany's DAX is up 0.3%.

The rupee was trading at Rs 70.23 against the US$ in the afternoon session.

After the Indian rupee fell to record low of 70-level, Union Minister Arun Jaitley stated that the country has comfortable foreign exchange reserves in order to deal with any undue volatility in the foreign exchange market.

He added that the developments in the currency market were being monitored closely to address any situation that might arise in the context of the unsettled international environment.

The Minister also said recent developments relating to Turkey have generated global risk aversion towards emerging market currencies and the strengthening of the dollar.

However, he said the country's macro fundamentals remain resilient and strong. The Indian currency had crashed to a life-time low of 70.32 on concerns over Turkey's economic woes that have impacted various emerging markets, even as the US dollar gained strength against other currencies.

Meanwhile, the Reserve Bank of India's (RBI) latest data showed that its foreign exchange reserves were at US$402.70 billion in the week ended 3 August, down US$1.49 billion over the preceding week.

RBI's stated position is that it does not seek to target a particular level for the rupee's exchange rate against the dollar and uses its reserves to ease volatility in the currency market. Besides, in the FY19, the rupee has depreciated by around 6.7% against the US dollar.

Note that the rupee has been witnessing selling pressure against the US dollar since the start of this calendar year. This is evident from the chart below, which shows the quantum of US dollars a 100-rupee note can buy and how this rate has been declining over the past few months:

Indian Rupee in a Steep Decline

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

Ankit Shah has explained how the depreciation in rupee is linked to foreign investor outflows and forex reserves in one of his editions of Equitymaster Insider. You can read the entire article here (requires subscription).

In another development, India is being hit by a wave of steel from producers in Japan and South Korea, as mills there redirect supply after US President Donald Trump slapped an import duty on the alloy earlier this year.

Reportedly, during the first quarter of the fiscal year starting in April, India's steel imports from South Korea rose 31% from a year earlier, while those from Japan climbed 30%.

The flood of imports is so big that the Central government is considering measures to control imports.

Between April and June, India became a net importer of steel, with foreign supplies reaching 2.1 million tonnes, 15% higher than a year earlier.

With the increase, the South Asian nation has now passed the United States as South Korea's third-largest market for steel, according to data from the Korea Iron & Steel Association.

As per the reports, New Delhi could look at imposing safeguards. Under World Trade Organization rules, safeguards are temporary restrictions on imports of a product to protect a domestic industry. However, renewed government measures would take place despite India's domestic steel industry being unable to meet the country's demand for high-end steel products needed for railroads and structural steel used in construction projects.

India's imports of steel products used by railways rose to more than 18,000 tonnes during the April to June period compared with 500 tonnes a year earlier, the steel ministry stated. Imports of steel products used in construction more than doubled to nearly 22,000 tonnes during the same period, it added.

The United States imposed tariffs of 25% on steel and 10% on aluminium imports in March. South Korea was the fourth-biggest steel exporter to the United States and Japan the 10th largest, the steel ministry said in a report in April.

Indian steel manufacturers are also impacted by the tariffs and the country will retaliate with duties on US products that will take effect next month.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Now you can also listen to our Indian Stock Market Wrapup. Just visit SoundCloudiTunes or Stitcher and access our free weekly podcast. Happy listening!

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