Of Rupee Depreciation, Fed's Interest Rate Hike, and Top Stocks in Focus Today

Thu, 28 Sep Pre-Open

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Indian share markets witnessed selling pressure yesterday and finished their session in red for a seventh straight session. This marks the longest losing streak for the indexes after a seven-day fall that ended on 22 December 2016.

Foreign investors have net sold US$777 million worth of Indian shares so far, this month.

At the closing bell yesterday, the BSE Sensex closed lower by 440 points and the NSE Nifty finished down by 136 points. The S&P BSE Mid Cap finished down by 2% while S&P BSE Small Cap finished down by 2.1%. Losses were largely seen in pharma stocks, realty stocks and capital goods stocks.

Top Stocks in Focus Today

From the pharma sector, market participants will be tracking Divi's Laboratories share price. The stock fell 12% in yesterday's trade after the company received six observations for its unit 2 in Visakhapatnam, Andhra Pradesh. US Food and Drug Administration (USFDA) inspected the plant during September 11-19, and issued six observations including failure in testing individual batches and inadequate cleaning instructions.

Investors will also be tracking ICICI Lombard General Insurance share price. Share price of the company fell as much as 3% in its market debut yesterday after raising Rs 57 billion in an initial public offering (IPO), amid worries about valuations.

Shriram Transport Finance share price and IDFC share price will be in focus today. This comes as the two companies have decided to abandon the merger plan worked out in July this year as shareholder pressure and dilution fears force them to examine a new, less complicated structure.

From the software sector, TCS share price will also be in focus today. The company's subsidiary Diligenta, a leading Life and Pensions BPS provider in the UK, has entered a 15-year partnership with Scottish Widows, Lloyds Banking Group's Life and Pensions business.

Rupee Continues Downtrend

The rupee continued its downtrend yesterday and hit fresh six-month low against the US dollar. It closed at 65.71 per dollar yesterday.

The fall in the rupee is seen on the back of outflows from capital markets by foreign institutional investors (FIIs) on the worries of overshooting fiscal deficit and geopolitical tensions between North Korea and US.

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.

Yen Hints at Interest Rate Hike This Year

Federal Reserve Chair Janet Yellen warned that it would be imprudent to keep policy on hold until inflation is back to 2%. She said that the US central bank should also be wary of moving too gradually on interest rates.

The above comments led to speculations for a December interest rate hike by the Fed.

One shall note that the Fed kept interest rate unchanged at its policy meeting held last week. It, however, signaled a hike by the end of this year.

Regarding the forecasts for upcoming years, the US Fed forecasts only two rate increases in 2019 and 2020, respectively.

The above measures explain that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

Chinese Industrial Profits Zoom

Economic data from China showed annual profits at China's industrial companies rose 24% YoY to US$ 101.2 billion in August. This was the biggest percentage jump since the Jan-Feb period and higher than 16.5% growth seen in July.

The above growth was driven by higher prices, particularly in sectors such as oil, steel and electronics.

The above data came as sweetener for authorities as Beijing focuses to strip out financial risks from years of debt-fueled growth and keeping the economy on a steady footing ahead of a crucial party gathering next month.

One of the recent issues from Vivek Kaul's Inner Circle takes a closer look at what's happening in the dragon economy, its internal politics challenges and its global ambitions. You can read the same here (requires subscription).

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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