You are here:HomeForex Why 67/Dollar is a Crucial Level for the Rupee

The Indian rupee, along with most other emerging market currencies, has come under sustained selling pressure since China devalued its yuan on August 11. The rupee has depreciated by 2.4 per cent (at a low of 65.43/dollar hit today) in a week since August 11. That compares with 0.5 per cent depreciation in the rupee since January 1, 2015.
  The rupee's recent fall has pressured domestic markets as well, but a fall beyond 67 per dollar may create panic among investors, according to Anindya Banerjee of Kotak Securities.

"Beyond 67 or so it will start hitting unhedged players in the bond market, and it can become a self-fulfilling trade. The more it will depreciate the more stop-losses will get triggered and it will fall further," Mr Banerjee added.

Despite a sharp fall, the rupee has outperformed other emerging market currencies. Mr Banerjee says India's better current account position and higher real interest rates (nominal interest rate minus inflation) is helping the rupee weather global turbulence.

According to Mr Banerjee, a breach of 67 per dollar may lead to capital outflows from domestic stock and debt markets. Foreign institutional investors who have unhedged positions in the bond market will first start liquidating their position and the outflow of dollar will happen triggering further fall in rupee, he added.

During 2008, India had a comfortable current position and the inflation was also low, still rupee depreciated by about 33 per cent in 15 months because of capital outflow from equity market, said Mr Banerjee.

The rupee, which fell to 65.43 per dollar in morning session, had recovered to 65.24 as of 1 p.m

IT, Healthcare Stocks Shine Amid Rupee Volatility; Sun Pharma Up 4%

Pharma and IT stocks saw strong buying action on Wednesday, helping the Sensex rise over 150 points. Analysts attributed the gains in pharma and IT stocks to weakness in rupee and defensive-related buying amid market volatility.

IT and pharma companies earn a major portion their revenues from overseas markets. So a weakening in the rupee helps boost their profits.

The BSE healthcare index was up 2.5 per cent to be the biggest sectoral gainer, with Sun Pharma, Lupin and Cipla leading the gains. Sun Pharma shares were up nearly 4 per cent to be the biggest gainer among Nifty stocks. Sun Pharma also received a boost after Bank of America Merrill Lynch upgraded the stock to buy with a target price of Rs 1,070.

Cipla and Lupin edged up over 2 per cent. In the midcap space, FDC surged nearly 12 per cent while IPCA Lab rose 6 per cent and Glenmark Pharma advanced 3.5 per cent.

The IT index rose over 1 per cent, with Wipro, HCL Tech and Infosys rising between 1.5 per cent and 2 per cent.

Meanwhile, Sensex reversed a 110-point fall in early trade to rise over 190 points at its day's high amid a recovery in Chinese markets. The Nifty rose 8,520 at its day's high.

China's stocks markets initially fell over 5 per cent today before rising nearly 1.5 per cent. The Chinese markets had slumped over 6 per cent on Tuesday.

Gaurang Shah, assistant vice president of Geojit BNP Paribas Financial Services, said the volatility in China will affect global markets including India. He suggests investors shifting to IT and pharma sectors, which are seen as defensives and gain from rupee weakness.

Ajay Srivastava, MD of Dimensions Consulting, said pharma and IT stocks are poised for bigger gains as investors rush to the safety of these stocks amid market volatility.

Bank of America Merrill Lynch in a report said that rupee depreciation is a positive catalyst for pharma stocks. Falling crude prices will also lead to lower raw material (active pharmaceutical ingredient) cost for the pharma sector, it added.

The brokerage sees Cadila Healthcare, Aurobindo Pharma and Lupin as biggest beneficiaries of a weak rupee. Cadila Healthcare was up nearly 1 per cent while Aurobindo Pharma gained nearly 3 per cent.

The rupee on Wednesday fell to 65.43/dollar at its day's low, before recovering to 65.26. On Monday, the rupee had closed at 65.31. The rupee has fallen over 2 per cent since China devalued its yuan on August 11.         

DLF, Jaypee Infratech Gain as Noida Projects Get Green Nod

Shares of real estate players DLF, Jaypee Infratech and Unitech gained on Wednesday after the government eased the green zone norms around Okhla Bird Sanctuary in the National Capital Region, a move that will help developers in Noida.

The new green zone is much smaller than the 10-kilometre radius demarcated by the National Green Tribunal in 2013. The government will issue a final notification within a week, said Environment Minister Prakash Javadekar. After the notification, the government will issue occupancy certificates, which will provide relief to around 1 lakh flat buyers.

DLF's Mall of India in Noida and four other realty projects fall within the revised green zone norms while Jaypee Infratech in this area has Wish Town project which is spread over 1150 acres.

Unitech also has a luxury residential Golf course project of 350 acres.

The revised eco-sensitive zone will be the area up to 100 metres from the eastern, western and southern boundary and up to 1.27 km from the northern boundary of the Okhla Bird Sanctuary.

Japyee Infra rose as much as 8 per cent to Rs 15.9 while DLF gained 3 per cent to Rs 131.85 and Unitech advanced nearly 2 per cent.

In comparison, the broader Sensex and Nifty were flat

Keep an Eye on Tech, Pharma Stocks Amid Rupee Weakness

Wall Street and European stock markets closed weak on the China scare. US bond yields ticked higher after solid housing data and ahead of the FOMC minutes and CPI inflation data due later today. Copper prices remain under pressure. Oil prices continue to remain depressed despite small rebounds occasionally.

The Chinese market collapse along with the continued weakness in commodities and emerging market currencies has now driven the MSCI EM equity index to October-2011 lows. Chinese markets sold off 6 per cent yesterday on concerns that authorities there may be less supportive of stock markets.

Trading action in India yesterday started muted and then got negative very quickly as Chinese markets dropped sharply. We then saw a steady recovery in the last 2 hours with Nifty making it back above 200 day moving average. Technology stocks were the best performers while metals was the worst performing sector.

Keep an eye out on tech and pharma stocks on rupee fall. Revenues to the tune of 50-55 per cent of Indian pharma companies comes from the US. Oil marketing stocks finally saw some upmove after having been ignored so-far after a great set of earnings.

Kaveri Seed ended 6 per cent higher after having lost 50 per cent in three months. There is no domestic market news flow today. The cues will largely be global.        

Oil Prices Fall Again as Lower Demand US Season Looms

Singapore: Oil prices fell again after a brief rise in the previous session, as the United States enters the lower demand autumn season and Asia's leading economies slow down.

Oil prices edged up Tuesday, briefly ending a rout that dominated the last 6 weeks and pulled down prices by almost a third, after bullish economic data and the prospect of falling crude stockpiles in the United States.

But the price rise did not last into Wednesday, when both U.S. West Texas Intermediate (WTI) crude futures and internationally traded Brent fell in early trading in Asia.

"Any recovery in WTI prices from a six-year low may be short-lived with the U.S. entering the slow demand period in September," ANZ bank said on Wednesday.

U.S. crude futures were trading at $42.37 per barrel at 0040 GMT, down 25 cents from their last settlement. Brent was down 28 cents at $48.53 a barrel.

"The recent drop in the price of oil confirms ... the global commitment producers have to their current levels of output," said Scott Cockerham, managing director Houston-based Conway MacKenzie's Energy Advisory Services.

"Could we see $30 oil in the next 15 months?  Absolutely, and headlines like China's recent yuan devaluation and the prospect of sanctions on Iran being lifted will only contribute to such volatility," he added.

Cockerham said a slowdown in U.S. drilling activity would not affect global supplies until 2017 and prices would likely remain low but volatile before then.

China Stocks Slump 4%, Drag Down Other Asian Markets

Tokyo: Asian shares on Wednesday struggled at two-year lows after Chinese stocks extended their fall, stoking fears about the stability of China's economy.

The Shanghai Composite Index retreated 3.9 percent, a day after worries that the central bank could be in no hurry to ease policy further pushed it down 6.1 per cent. The plunge dented hopes of Chinese share markets stabilising after Beijing effectively pulled out all the stops to stem the rout.

Japan's Nikkei fell 0.5 per cent and South Korea's Kospi lost 1.3 per cent.

"Investors care about these two things - China's economy and the timing of a U.S. rate hike. These two concerns dominate their minds now," said Masaru Hamasaki, head of market & investment information department at Amundi Japan.

MSCI's broadest index of Asia-Pacific shares outside Japan slid to a two-year low and was last down 0.1 per cent. Australian stocks bucked the trend and climbed 1.2 per cent.

Shares of importers and firms with high US dollar-denominated debt have been under pressure following last week's yuan devaluation.

The spectre of a slowdown in China's economic growth and a US interest rate hike has hit asset markets in emerging economies hardest.

MSCI's emerging market index fell to its lowest level since October 2011. It has dropped more than 20 per cent from the year's peak it hit in April.

Wall Street shares also retreated overnight, with the S&P 500 sliding 0.26 percent, pressured by weak earnings from retail giant Wal-Mart.

Concerns about slowing demand from China for commodities also hit copper prices, which slid to a six-year low of $4,983 a tonne, breaking the psychological $5,000 level. It last stood at $5,025.00 a tonne.

That in turn knocked copper exporters, with the Chilean peso sinking to 12-year lows.

Ripples were also felt in other emerging currencies following China's surprise move to weaken the yuan last week. Vietnam widened the dollar/dong trading band to 3 per cent from 2 per cent, the second move in a week, in an effort to protect its exports.

A number of emerging market currencies meanwhile are facing capital outflows also as investors shift funds to the dollar, interest rates on which look set to rise.

U.S. housing starts rose to a near eight-year high in July as builders ramped up construction of single-family homes, supporting the case for a rate hike.

Many investors and economists see the Fed as most likely to make its first hike in nearly a decade next month as the labour market continues to improve.

The minutes of the Federal Reserve's July meeting due later on Wednesday will be scrutinised with extra care for any new clues on the Fed's likely timing.

The prospects of higher rates supported the dollar against most other currencies. The euro traded at $1.1050 , having hit one-week low of $1.10165 on Tuesday.

The British pound also gained, rising to a 7 1/2-year high on a trade-weighted basis as UK inflation data released on Tuesday beat expectations, bolstering bets that the Bank of England will raise interest rates in the coming months.

"On top of the Fed, the Bank of England is likely to raise rates around the same time. Considering the UK is a global money centre, simultaneous tightening could increase anxiety (on risk assets)," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

Oil resumed falling after a brief bounce on Tuesday. Prospects of demand from the United States weakening during the upcoming autumn and a slowdown in Asia's leading economies have weighed on the commodity.

U.S. crude futures were down 0.2 percent at $42.52 per barrel, edging back towards a 6-1/2 year low of $41.35 struck on Friday. Brent crude was down 0.4 percent at $48.63 a barrel and in reach of 6-1/2 month troughs.

Coal Prices Fall To 12-Year Lows as China, India Join Demand Slowdown

Singapore: Coal futures have fallen to 12-year lows, hit by soaring production and a slowdown in global buying, including from India and China which until recently have been pillars of strong demand.

Benchmark API2 2016 coal futures last settled at $52.85 a tonne, a level not seen since November 2003. The contract is now over 75 per cent below its 2008 all-time peak and more than 60 per cent below its most recent high following the 2011 Fukushima nuclear disaster in Japan.

The steady and sharp fall in coal prices has knocked down shares of big mining companies like BHP Billiton, Glencore and Rio Tinto, and it has seen many financers exit the sector.

The price fall follows a rise in output from exporters like Australia at the same time as a sharp slowdown in overseas orders from major importers like the United States, and now also China and India.

"Indian coal imports are now under pressure ... Both thermal and met coal imports ran at their weakest annualised rates since October 2014," Australian bank Macquarie said on Wednesday.

"Such a fall might not be just a temporary blip. On the thermal coal side we have seen power plant inventories reach record high levels, domestic production growth improve significantly and demand growth slow," it added.

Thermal coal is used in power plants while metallurgical coal is used to make iron ore.

Demand from China has also slowed as its economy grows at its slowest pace in decades and the government has started a fight against rampant pollution, to which coal contributes significantly.

In the United States, soaring natural gas from shale formations has made gas much cheaper, eating into coal's US power generation share, and the government also plans to move away from coal for environmental reasons.

Demand in Europe has been flat as energy efficiency improves, renewables take increasing shares of the power mix and many of its economies struggle to grow.

Yet at some point the low coal prices could also start to stimulate demand as it has made the fuel super-competitive against its main competitor, natural gas.

Reuters calculations show that the revenues from selling electricity generated from coal in Germany are around 20 euros per megawatt-hour higher than those produced from natural gas.

Emerging markets which have yet to provide blanket electricity to its households and need cheap energy to develop their industry also still mostly rely on coal as their main fuel as they prioritize low costs over environmental concerns.

Sensex May Open Lower on Weak Global Cues

9:10 a.m.: Sensex gains 20 points to 27,852 and Nifty jumps 1 point to 8,468 in the pre-market session.

9:00 a.m.: Rupee opens lower at 65.42 per dollar against Monday's close of 65.31.

8:55 a.m.: SGX Nifty slips 0.3 per cent to 8,449 as China markets extend losses. Shanghai Composite index slumped 2.7 per cent and Shanghai Shenzen index was down 1.8 per cent.

8:40 a.m.: Below are the stocks which will be in focus today:

DLF: DLF has sold a four acre land parcel in Kochi for Rs 111 crore. Sale was a part of its plan to sell non-core assets. This sale will boost cash flows and reduce debt of the company.

Majesco India: Majesco India shares will list on the BSE and NSE today. Majesco is the demerged insurance company of Mastek. For each Mastek share investors got one Majesco share.

Infosys: Infosys has bagged order from Fidelity Bank of Nigeria.

Coal India: Reports suggest that Coal India will seek shareholders' nod to extend CMD's tenure till 2017.

Hindalco: Reports suggest that Hindalco will focus on controlling costs over the next two quarters.

Aurobindo Pharma: Aurobindo Pharma plans to build three formulation plants in Andhra Pradesh and Telangana.

Everonn Education: Everonn Education board has proposed conversion of promoter loan into equity. The conversion will be done via preferential allotment of shares to promoters.

Pipavav Defence: Gujarat government has cleared Reliance Infrastructure's open offer for Pipavav Defence.

Jindal Saw: Jindal Saw plans to seek shareholder nod to raise up to Rs 1,000cr via non-convertible debentures on September 18.

TRF: TRF has bagged Rs 73.9 crore order from BHEL

Future Group: Future Group has inked a joint venture pact with Swiss firm Mibelle

Prestige Estate: Karnataka government has rejected Prestige Estate Projects' claims over 3.23-acre Whitefield plot.

8:15 a.m.: Foreign institutional investors sold shares worth Rs 255.40 crore on Tuesday while the domestic institutional investors sold shares worth Rs 127.5 crore.

8:00 a.m.: The Sensex and Nifty are likely to open on a weak note tracking weakness in other Asian markets. Meanwhile, the Nifty futures traded on the Singapore Stock Exchange was also indicating a weak start. The Nifty futures traded on the Singapore Exchange also known as the SGX Nifty was down 0.14 per cent or 12 points at 8,462.

Asian shares on Wednesday struggled to move away from two-year lows the previous day after big falls in Chinese shares raised fresh fear about the stability of China's economy.

Japan's Nikkei and Hong Kong's Hang Seng fell 0.5 per cent each. Chinese share market was trading on a weak note after yesterday's 6 per cent fall. Shanghai Composite index plunged 2.5 per cent and the Shanghai Shenzen index was down 1.7 per cent.

Overnight, The Dow Jones industrial average fell 41.22 points, or 0.23 per cent, to 17,503.96, the S&P 500 lost 6.16 points, or 0.29 per cent, to 2,096.28 and the Nasdaq Composite dropped 26.84 points, or 0.53 per cent, to 5,064.86.