Chinese shudder

Aug 17, 2015, 08:43 IST | Arun Kejriwal

The world’s most populous country devalued its currency, which made waves across the globe

The last week saw China devaluing its currency thrice, by about 4.5 per cent making the world shudder. There was a global sell off in markets, commodities and Asian currencies. India was no exception and we lost over 2 per cent in two days and so did currencies.

Yuan banknotes and US dollars are seen on a table in Yichang, Central China’s Hubei province as the Chinese currency has the world in a tizzy. Pic/AFP
Yuan banknotes and US dollars are seen on a table in Yichang, Central China’s Hubei province as the Chinese currency has the world in a tizzy. Pic/AFP

There was a strong rebound on Friday, as a result of the same, our markets closed lower but under control. Sensex lost 169.08 points or 0.60 per cent to close at 28,067.31 points while Nifty lost 46.05 points or 0.54 per cent to close at 8,518.55 points.

Broader markets saw BSE100, BSE200 and BSE500 lose 0.75 per cent, 0.85 per cent and 1.08 per cent respectively whilst Midcap was down 0.90 per cent Smallcap a whopping 2.79 per cent.

Depreciating rupee
In sectors, the top performer helped by the depreciating rupee was IT up 4.06 per cent followed by Healthcare 3.07 per cent and Tech 2.41 per cent.

Metal was the top loser down a massive 9.99 per cent followed by PSU 4.91 per cent and Oil and gas 4.61 per cent. In individual stocks, the top gainer was IT major TCS up 5.56 per cent followed by Sun Pharma 5.52 per cent.

Other gainers included shipping company GE Shipping 8.84 per cent and DLF 7.32 per cent. Losers were led by metal stocks with Vedanta Limited losing 17.19 per cent followed by Hindalco 14.87 per cent and Coal India 9.17 per cent.

The Indian rupee lost Rs 1.19 or 1.86 per cent to close at R65. FIIs were sellers of R2,443 crores and have turned net sellers in August so far. Dow Jones gained 104.02 points or 0.59 per cent to close at 17,477.40 points.

Parliament washout
Back home, Parliament finished its session without any business being transacted. Economic data saw inflation falling further and wholesale inflation was negative for the ninth month in a row falling to levels last seen in 1976.

While this is a statistical figure it gave hope to people who want a rate cut from the RBI governor. Friday saw a huge rally and the market made up for most of the two day fall due to the China devaluation.

There is a possibility of a two day special session in September before the Bihar poll notification held to clear the GST bill. This was coupled with the fact that inflation data gave hope that rate cut may now happen outside the policy review and give some stimulus to the bulls and industry.

These are expectations and there is no news to that effect but markets always run on rumours, never facts. The government has announced a seven point plan ‘Indradhanush’ for the PSU banks.

It includes appointments, recapitalisation of banks by infusing Rs 20,000 crores by September and performance based allocation of Rs 15,000 crores by March 2016 and Bank board Bureau amongst others.

While the thinking on this saw PSU banks rallying on Friday it were not enough to recover losses of earlier four days and Bankex ended in the red down 0.99 per cent.

Maggi is back
Maggi noodles has been cleared by the Bombay High Court. It would take some time for the product to regain the status it had before the ban. The incident saw a 30-year-old brand brought to its knees and made a profitable company like Nestle suffer its first quarterly loss in probably 42 years.

Crude prices have fallen to their lowest level in six years. While it is good news for India, part of the gains to accrue is lost on the rupee depreciating. China is the second largest economy in the world and the largest consumer of crude oil and copper.

Both these commodities have hit multi year lows. China’s slump is a cause for concern, it can have a cascading effect. Markets have rallied strongly on Friday and they need to hold on to those gains. With Parliament closed, announcements by the government would be much more and action on the GST bill and special session would be a key for the next ten days or so.

With result season over, the drivers would be China and the news from the government. Markets would be volatile in the week ahead and China would be a key factor and news to watch out for. Currency movements would also be volatile. Trade cautiously.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website

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