Downgrade hurts Re, stocks

MUMBAI, June 22: The financial markets were on Monday rocked by the Moody's decision to downgrade India's rating. Even as the Sensex BSE se...

MUMBAI, June 22: The financial markets were on Monday rocked by the Moody8217;s decision to downgrade India8217;s rating. Even as the Sensex BSE sensitive index fell by 65 points on the Bombay Stock Exchange, the rupee declined sharply to an all-time low of 42.85 against the dollar on the inter-bank forex market.

The stock markets witnessed wild swings and the Sensex showed an intra-day fall of 190 points from the previous week8217;s close of 3,143.10. Rumours that Finance Minister Yashwant Sinha8217;s visit is likely to bring in many sops for the domestic market players saw the index rebound from its 52-week low of 2,951.45 to close at 3,078.51 recording a net loss of 64.59 points.

The fall on the National Stock Exchange was steeper than the BSE. The NSE-50 index declined by 33 points to 880.25. Financial institutions led by UTI made purchases in index-based scrips and contributed to the partial recovery.

In the forex market, the rupee opened higher at 42.36/38 but fell to the historic low of 42.85 in the pre-midsession trading due to heavy dollar buying by the banking sector. However, profit-booking by exporters at higher levels allowed the Indian currency to stabilise at 42.65. However, the rupee ended at 42.72/75, losing 55 paise in a single trading session.

State Bank of India SBI sold dollars but it was not enough to prevent the currency from falling. According to a dealer, Moody8217;s downgrade had been factored in by the market. quot;It is official now. Most have hedged their positions in the forex market8230; There will be an initial panic on the rupee front, but I see it correcting itself soon. The effect, if any, will largely be on account of pyschological reasonsquot;.

The rupee8217;s brief appreciation on Monday morning was also abetted by finance secretary Montek Singh Ahluwalia8217;s statement that Moody8217;s downgrade was no reason for pessimism about India8217;s economic fundamentals. On the stock markets, there was panic in the opening session when Sensex fell by nearly 190 points. There was heavy selling pressure fromforeign institutional investors FIIs, particularly in index scrips like Hindustan Lever, ITC, SBI, and Infosys. Bears availed of this opportunity to press heavy sales.

However, aggressive buying by domestic institutions coupled with hectic attempts by local punters to cover short positions provided the much-needed support at the crucial level of 3,050 points. 8220;However our perception continues to be negative on the Indian markets,8221; said a dealer of UBS Securities.

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FII sources said the inflow of foreign funds is likely to be affected by the downgrading by Moody8217;s. With the threat of sanctions now becoming a reality and global rating agencies downgrading India, the forex reserves of the country had fallen by US 909 million Rs 3,818 crore to 27.57 billion in a week. This 3.3 per cent fall in forex level follows massive intervention by the RBI in the foreign exchange market to prop up the rupee and withdrawal of funds by FIIs from the stock markets.