Mumbai: The benchmark Sensex fell 151 points today after the US Federal Reserve decided to taper its monthly bond-buying programme, raising concerns that funds available for investing in emerging markets would be reduced.
Banking, capital goods and oil & gas stocks declined the most while IT, teck, pharma and metal shares advanced. IT shares were in the limelight on expectations of the economy recovering in the US, their biggest market.
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ICICI Bank, HDFC and HDFC Bank were the biggest drag on the index, while Infosys and TCS lifted it. Starting next month, the US central bank will cut its purchases of bonds to USD 75 billion from USD 85 billion, according to a statement after the Federal Open Market Committee yesterday.
The committee expects that with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline. The 30-share S&P BSE Sensex opened on a strong note and touched a one-week intra-day high as Asian stocks firmed up on the Fed decision.
However, increased fears about the impact of the US tapering programme took the index to the day's low of 20,646.03, a drop of almost 214 points. The Sensex recovered some ground and closed at 20,708.62, a fall of 151.24 points or 0.73 per cent.
"Emerging market economies (EMEs) have been caught off guard on the timing of the Fed decision, as consensus seemed set on March 2014. Chances of a capital flight to the US and a strong dollar are real, and EMEs could suffer as higher-than-expected equity and debt outflows can materialise than already priced in," Ashish Kumar, Economist at Elara Securities, said in a report. Finance Minister P Chidambaram said India is better prepared for the tapering and it has been factored in.
Yesterday, the index gained for the first time in seven days and added 247.72 points after the Reserve Bank of India kept a key short-term lending rate unchanged. The 50-share CNX Nifty on the National Stock Exchange dipped 50.50 points, or 0.81 per cent, to 6,166.65.
While announcing the reduction in the stimulus programme, the Fed said interest rates would be kept close to zero. "Markets today felt the pressure of the Fed's decision," said Jignesh Chaudhary, Head of Research at Veracity Broking Services.
"Although this was pretty much anticipated and factored in, markets just traded a bit cautiously today. A weak rupee, too, added to the negativity." The decline in the Sensex was limited by firm global cues and capital inflows.
Foreign institutional investors bought shares worth a net Rs 1,198.60 crore yesterday, according to provisional data from the stock exchanges. The Asian markets, except China and Hong Kong, gained after the Fed's decision. European stocks surged in early trade.
In New York yesterday, the Dow Jones Industrial Average and the S&P 500 logged new closing peaks, surging by 1.84 per cent and 1.68 per cent, respectively. The Nasdaq Composite Index spurted 1.15 per cent. In the domestic market, 19 Sensex shares ended lower.
The major losers were ICICI Bank (-3.02 pc), Larsen & Toubro (-2.96 pc), HDFC (-2.76 pc), ONGC (-2.63 pc), HDFC Bank (-2.16 pc), Tata Power (-2.13 pc) and State Bank of India (-1.95 pc). However, Maruti Suzuki rose 2.97 pc, followed by Sesa Sterlite 1.79 pc, Sun Pharma 1.69 pc, Cipla 1.65 pc, Infosys 1.64 pc and Wipro 1.44 pc.
Among the S&P BSE sectoral indices, Bankex tumbled 2.43 pc, Capital Goods 1.91 pc and Oil & Gas 1.23 pc, while IT firmed up 1.74 pc, Teck 1.26 pc and Healthcare 1.09 pc. The total market breadth turned negative as 1,319 stocks ended lower and 1,099 gained.
Rupee down 5 paise to 62.14 against dollar on weak equities
In volatile trade, the rupee fell five paise to 62.14 against the dollar today, the lowest level in more than two weeks, amid weakness in local stocks after the US Federal Reserve said it would cut its bond purchases.
Dollar demand from importers also weighed on the rupee, which declined for the third straight day, while some weakness in the US currency overseas and increased capital inflows restricted the fall, a forex dealer said.
At the interbank foreign exchange market, the rupee opened lower at 62.25 a dollar from yesterday's close of 62.09 and dropped further to a low of 62.48 as local stocks fell.
However, heavy portfolio investments by foreign funds and a fall in the dollar overseas later helped the rupee recover to a high of 62.07. It closed 62.14, a drop of five paise or 0.08 per cent. In three sessions, it has dipped by 41 paise. The rupee is at the lowest level since December 3.
The US Fed will cut bond buying by USD 10 billion to USD 75 billion a month from January on signals the world's biggest economy is improving. The step may affect foreign capital inflows into local stocks.
Next: Fed tapering decision impacts markets; govt promises more steps
Fed tapering decision impacts markets; govt promises more steps
New Delhi: India's' stock and currency markets reacted negatively to the US Fed's announcement to reduce bond purchases, even as Finance Minister P. Chidambaram tried to calm the sentiments by assuring that government could take more steps to deal with emerging situation.
"If any other policy actions are required, we will respond. At the moment all that we have announced (are having) impact," he said after the US Federal Reserve announced that it would reduce the monthly bond purchases to USD 75 billion from the existing level of USD 85 billion from January.
Following the Wednesday night announcement by the US Fed, benchmark sensex BSE fell by about 140 points while the rupee slipped to 62.23 a dollar in the afternoon trade.
Chidambaram said the government is of the view that the markets had already factored in the US Federal Reserve's decisions and "therefore is not likely to be surprised by these moderate changes".
The Minister, who spoke to Reserve Bank Governor Raghuram Rajan in the morning about the impact of US tapering, said "we are better prepared than in May 2013 to deal with consequences, if any, of the US Federal Reserve’s decisions.
"I think the consequence should not be large. Even if there are some consequences then I think we are better prepared," he said, adding, India has increased the quantum of bilateral currency swap arrangement with Japan from USD 15 billion to USD 50 billion, a move which will help in stabilising the rupee exchange rate.
Chidambaram further said: "We have to wait to see what they (US) do with the interest rates. Fed says interest rates will continue to be kept low".
