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17 Nov, 2011, 05.23PM IST, ECONOMICTIMES.COM
Nifty may test levels of 4700; Rupee depreciation, corporate earnings weigh
NEW DELHI: The BSE Sensex slipped over 360 points in trade on Thursday to post its lowest close in six weeks as concerns on the mounting European debt crisis continued to dampen investor sentiment.
The broader 50-share NSE index closed 1.9 per cent down to 4,934.75.
The 30-share BSE index closed 1.87% lower at 16,461.71 points led by losses in Reliance Industries (down 4.5%), ITC (down 2.3%) and HDFC (down 1.7%).
World stocks too dipped to a one-week low and the euro held near a five-week trough while safe-haven German bonds rose, as concerns grew over spillover damage to US banks from the euro zone sovereign debt crisis.
According to analysts, panic in local markets is largely on account of rupee movement which has depreciated and is now testing levels of Rs 51 per dollar and rising crude prices.
"Market seems to be nervous due to global tremors and Italy's voting on austerity plan. Results for Q2FY12 were disappointing on the PAT front where we observed companies facing margin pressure due to high interest outgo and forex loss in context of volatility and sharp depreciation in INR (51) creating a discomfort to the markets," said Siddharth Sedani, AVP, Microsec Capital Ltd.
Market is keeping an eye on the Parliament winter session due to pause in policy reforms since a year.
The partially convertible rupee closed at 50.90 per dollar as compared to its previous close of 50.73 per dollar in the previous session.
The unit had ended 0.15 percent weaker at 50.7350/7450 on Wednesday when it had dropped to 50.96 -- its weakest since March 31, 2009.
Traders said spot rupee rate had not yet found much solace in the government's decision to raise ceiling on foreign institutional investment in government and corporates bonds by $5 billion each earlier in the day.
"Rupee is losing continuous value in quick time and nobody knows where it is headed. There is no defence. The Reserve Bank of India (RBI) says that they do not want to intervene if the markets are orderly, so it looks that it is headed for new low," added Raamdeo Agrawal, Joint MD, MOFSL.
"Reliance Industries plunged in trade on reports of refining margins slump," added Ramdeo. Shares of Reliance Industries closed 4.5% lower to Rs 810.65.
The 50-share Nifty index is now trading below the 4950-4960 mark. On the hourly charts what we have seen is that the volatility indicators have started to rise which means that we might get into more choppier days going ahead. I would bet on probably 4,850 and then 4,750 being tested in the next few days on the Nifty," said Mitesh Thacker of miteshthacker. com.
"It looks like markets are headed to test levels 4700 on Nifty", said Raamedo
To choose the best investment strategy, Siddharth Sedani, AVP, Microsec Capital Ltd advises investors to buy stocks in the large cap such as RIL, SBI, Infosys, Coal India and L&T.
"Nifty has been moving in downtrend since last one year. Now, the long term crucial support of nifty is in the range of 4650 and 4700. If it breaks 4650, it may further go down and take support near 4400. However, in the extreme short term some pull back rally to 5200 is expected because of stochastic divergence on daily chart," Ranajit Kumar Saha, Sr. Manager- Technical Research, Microsec Capital Ltd.
Contagion crisis weigh
Contagion from the crisis to the global banking sector is becoming one of the top investor worry.
Wall Street fell on Wednesday after Fitch Ratings warned it may lower its stable rating outlook for U.S. banks with large capital markets businesses due to contagion from the problems in European markets.
"Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks will darken. The risks of a negative shock are rising," Fitch said.
"Contagion to Emerging Markets is a key risk. We still see multi-year balance sheet retrenchment and challenging fundamentals - with risks to credit supply, bank earnings, ability to achieve new capital ratios and economic recovery," according to a note by Morgan Stanley.
"Europe's debt crisis brought down governments in Greece and Italy because of investor concern the nations will have trouble paying their debt. If all goes out of the hands then it may create a big treat and risk to global banks. Hence, investors have to be cautious in their approach in terms of stocks specifics and buy quality large caps in a staggered manner," added Siddharth.
The euro hit a five-week low versus the dollar, a day after rating agency Moody's downgraded 12 German public sector banks seen as likely to receive less federal government support if needed.
However, euro recovered from its 5-week low on Thursday as firmness in Asian shares prompt short-covering in the euro and other risk currencies after heavy selling in the past few days.
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