statesman news service
MUMBAI, 27 JUNE: Stock and currency markets recovered sharply today after the Reserve Bank of India’s dramatic one day in advance disclosure that the alarming current account deficit for the quarter ended 31 March has dropped to 3.6 per cent of the GDP from the previous quarter’s 6.7 per cent or from $32.6 billion to $18.2 billion, yielding to the effective curbs imposed on imports of gold.
The release of encouraging CAD numbers instantly sparked short-covering on Dalal Street lifting benchmark indices to close with wide positive margins to mark the expiry day for June’s futures and options derivatives.
The S&P Bombay Stock Exchange Sensitive Index rallied back to end at 18,875.95 gaining 323.83 points or 1.75 per cent. The CNX Nifty of the National Stock Exchange soared over 100 points in the afternoon but closed a shade below it at 5,682.35, an increase of 1.68 per cent or 93.65 points.
The sharp moderation in CAD and strong equities helped rupee rebound by 53 paise, its best single-day gain in a fortnight, to end at 60.19 against the dollar.
The RBI was to announce CAD numbers on Friday the last working day of June as is the practice. But the central bank departed from the convention sensing the need to change the dismal and pessimistic sentiment looming across Dalal Street and currency market since May.
The equities bounced back and the partially convertible rupee too recovered as the CAD burden lessened. Market watchers say it would be worthwhile to see how foreign funds react to the CAD numbers. On multiple worries, the foreigners have withdrawn more than $5.5 billion in June through massive sell-off in both debt and equity markets. The RBI has, however, warned the government to keep vigil on global macro-economic developments particularly in the USA.
The recovery was faster in afternoon trade on positive global cues. Although the rupee improved from Wednesday’s steep fall, it still remains the most vulnerable among all emerging market currencies, say dealers on the inter-bank foreign exchange. Stock analysts pointed out that today’s rally was party on account of profit-booking by speculators who took advantage of the RBI’s positive announcement about falling CAD.
The RBI, however, raised concern over 15 per cent increase in external debts at $390 billion which, currency market sources say, is a worrying factor on two counts. First, it underlines penchant for external debts which should not be difficult to tackle for an $1.8 trillion economy of the country.
Second, the debt that has to be repaid for the current financial year is $172 billion which appears a tall order considering foreign reserves available with the central bank at $290 billion.
Moreover, the debt situation may get complicated with the depreciation in the rupee against all important global currencies. A Japanese investment bank Nomura today reported: “Our FX valuation analysis (for India) shows the Indian currency is still 17.6 per cent overvalued.” It warns the CAD may worsen if the rupee declines more.
On the BSE the main gainers included ONGC at Rs 320.55 (4.14 per cent), TCS at Rs 14,88.80 (3.85 per cent), HDFC Bank at Rs 646.30 (3.62 per cent) and RIL at Rs 830.45 (3.48 per cent).