Sensex has already lost 1000 points

Tuesday almost looked like a repeat performance of the Nifty as it again fell by another 151 points on to 11,288 on global concerns. In fact, the Sensex has already lost 1000 points in just two sessions of trade. The worsening trade war situation and the weakening rupee took its toll on the markets. There was not a single winning sector on Tuesday with consumer good, FMCGs, metals and realty among the major losers. The extent of the correction was evident from the fact that the best performing sector was the BSE Tech sector with returns of (-0.70%). FPI bond selling only worsened matters.

Finally, SEBI has tightened the screws on the co-location case. SEBI directed the key accused in NSE co-location case to stay out of action. In order to ensure a free and fair investigation, the SEBI instructed NSE to ensure that the key management personnel (KMP) who have been served show cause notices by SEBI to stay out of the bourse’s sensitive and confidential matters till the probe is completed. The key personnel have also been asked to recuse themselves from key decisions. Senior officials are being investigated for involvement in offering privileged access to select brokers.

The bond market is normally the best barometers of FPI sentiment and India has learnt that the hard way in 2013. Global funds sold Indian bonds at the fastest pace in last four months in month of September. The panic selling in bonds by FIIs is largely reflective of the sharp fall in the rupee as global investors are worried about holding their investment value in rupee. In the first week ended September 07th, the FPIs sold $686 million worth of bonds, which is more than the combined bond sales by FPIs in the month of July and August. Bond selling also pushes the rupee further down.

Brent crude has threatened to get back to the $80/bbl mark on Iran worries. Brent Crude was up sharply by 2.18% on Tuesday at $79.06/bbl. The price of Brent Crude shot up on Tuesday on the back of concerns that US supply may not be able to keep pace and make up for the production lost by US sanctions on Iran. A higher crude basket price means higher import bill for India and a widening trade deficit. The US sanctions on Iran are scheduled to become effective from the 04th of November this year. Iran is India’s largest oil trading partner, even larger than Saudi Arabia.

For the Indian financial markets, it appears to be a fairly potent combination of a weak rupee and rising yields. Rupee tumbled further to 72.695/$ and 10 year bond yields closed higher at 8.18%. The rupee closed near its intraday low of 72.74/$ and has been under significant pressure from dollar demand. The government has not yet announced any NRI bond scheme to tide over the rupee crisis. The bond yields have also moved decisively past the 8% mark on expectations that the RBI may not have much of a choice but to hike the interest rates. Currently, the RBI has already seen its forex reserves dip from $428 billion to below the $400 billion mark. With less than 9 months of import cover, the RBI may have limited options to intervene and sell dollars in the market. Another rate hike is now the worry.

In Telangana; the Congress, TDP and CPI tie up to take on the ruling TRS. In what could be the first sign of a likely grand alliance at the national level, all the principal opposition parties in Telangana got together to present a joint face against the ruling TRS. Last week, the TRS had dissolved the Telangana assembly hinting that the state may declare fresh elections in the state to make the best of the interim euphoria in favour of the ruling party. Congress and TDP have been traditional rivals and the success of these alliances could pave the way for alliances at a national level.

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