Rupee, stocks sink as risk appetite dips
Donald Trump win, US rate hike fears weigh on markets along with note ban
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Mumbai: Indian stocks posted their fourth straight weekly decline on Friday and the rupee closed at its lowest in nearly nine months as risk appetite for emerging market assets wanes following Republican Donald Trump’s victory in the US presidential race and rising prospects of a US interest rate hike.
The 30-share Sensex closed down 0.3% on Friday at 26,150.24 points and the Nifty shed 0.07% to close at 8,074.1 points. For the week, the Sensex and Nifty shed 2.49% and 2.68% respectively.
The rupee closed at 68.14 a dollar, a level last seen on 29 February, down 0.45% from its previous close of 67.83. So far this year, it has fallen 3%.
“Abundant domestic and global liquidity had driven our market marginally ahead of fundamentals. With US 10-year bond yields spiking, there is a sell-off in emerging markets and India is not an exception despite its strong fundamentals,” said Nilesh Shah, managing director of Kotak Mahindra Asset Management Co.
“The rising US yield along with fresh concerns on Italy and EU (European Union) will keep global risk appetite in check, restricting inflows to emerging markets including India, ” he added.
Foreign institutional investors have been net sellers of Indian shares in 19 out of 25 sessions to Thursday, offloading a net of $2.3 billion worth of shares.
Late on Thursday, Fitch Ratings said Trump’s victory and the uncertainty over aspects of future US policy automatically creates uncertainty for many other sovereigns to varying degrees.
The emerging market sell-off is only likely to accelerate after US Federal Reserve chair Janet Yellen signalled the central bank may increase interest rates relatively soon.
This coupled with strengthening US economic data— such as consumer prices increasing the most in six months in October—make the case for a Fed rate hike as early as December.
“Following Fed chair’s testimony, the odds of a December US rate hike has increased, adding fuel to the dollar’s rally. This dragged down currencies of emerging markets, already under pressure of fund outflows following the US electoral outcome,” said Anand James, chief market strategist, Geojit BNP Paribas.
On Friday, the dollar index, a measure of the greenback against six major currencies, soared 0.08% to 100.97, a level last seen in 2003.
A December US rate increase will not surprise markets to further weaken the rupee, and there are no clear indications on the pace of further rate hikes, James added.
Domestic stocks have also had to contend with the side-effects of the government’s move to withdraw large-denomination bank notes. Investors have been wary about the near-term corporate earnings outlook, especially in sectors such as consumer staples and discretionary goods.
Although fears of a more protectionist attitude on the part of the US was the major driver of the redemptions from Asia ex-Japan equity funds, investor reaction to the Indian government’s recent decision to pull Rs500 and Rs1,000 rupee notes out of circulation played a role, with outflows from India equity funds hitting a 43-week high in the week to 16 November, global fund-flow tracker EPFR Global said in a note.
“Trade disruption and short-term consumer demand destruction-led delayed earnings recovery will weigh in the short term,” said Shah of Kotak.
In Friday’s trading, BSE consumer durables and metal indices dipped the most. They fell 1.26% and 1.19%, respectively.
Reuters contributed to this story.