Nagging inflation, high interest rates and a weak US dollar may play spoilsport on the Indian stock market on the first day of trading in the new financial year beginning on Monday.
While the central bank’s sudden move to hike the key short-term lending rate and cash reserve ratio late last week are set to eat into the profitability of banks, impact on a number of other interest rate-sensitive sectors could lead to huge selling on bourses in the days to come, analysts believe.
In addition, the sharp appreciation in the rupee versus the dollar over the past few days would continue to batter stocks from export-oriented sectors such as information technology, pharma and telecommunications.
Corporates are set to start releasing their fourth-quarter results in the next 10 days and analysts are not anticipating any bumper numbers as these developments have eaten into their coffers.
Besides, the stock market is also expected to start absorbing expectations for a weaker guidance for the next fiscal as well as quarterly results, as the Reserve Bank of India’s move to hike interest rates just before the end of fiscal year would act together with rupee appreciation towards bearish expectations.
The companies generally take into account the interest rate and currency levels of the last day of the quarter for making their guidances.
The 30-share Bombay Stock Exchange (BSE) Sensex settled at 13,072.10 on the last trading day of this fiscal, only 15.88% higher than 11,279.96 points at the end of financial year 2005-06.
While it could still be a better return than a number of other stock markets as well as other investment vehicles, it pales in comparison with the massive return of 73.7% the Sensex had given in 2005-06.
Earlier, in 2004-05, the Sensex rose by 16%, while it took a huge jump of 83.3% in 2003-04, according to data available with BSE.
The index was at 6,492.82 points at the end of 2004-05 and 5,590.60 at the end of the previous year.
The Sensex is currently trading about 3,444 points below its life-time high of 14,724 points scaled on 9 February, 2007.
However, the sharp bouts of selling over the past year did not deter investors from thronging Dalal Street, which registered a record annual turnover this fiscal.
While the value of total business conducted at BSE crossed $200 billion (Rs8,60,000 crore) milestone, the National Stock Exchange (NSE) recorded an annual turnover of well above $400 billion for the first time in its history.
Transactions worth over Rs9,50,000 crore were conducted at BSE in the current fiscal.
The annual turnover has nearly doubled from close to $110 billion in 2003-04, although the number of listed scrips has seen a rise of only 5% in the same period.
NSE also set a new record in terms of annual turnover, which is estimated to be about Rs19,50,000 crore this fiscal.