A bearish mood prevailed over stocks on Wednesday ahead of the release of inflation data in the US, though the sentiment was better in the bond and forex markets amid expectations of support from the Reserve Bank of India (RBI) and a steady dollar index.
Stock prices continued their downward spiral and settled lower for the fourth straight session. The 30-share Sensex came under pressure inspite of a positive start and crashed nearly 846 points to the day’s low of 53519.30.
Bargain hunting ensured the Sensex recouping part of its losses as it ended lower 276.46 points or 0.51 per cent at 54088.39. The broader Nifty 50 settled 72.95 points lower at 16167.10.
Market circles said even as investors preferred to wait for the US inflation data, selling by foreign portfolio investors affected sentiment.
At the bond markets, the yields have eased by 25 basis points over the past two sessions on expectations that the RBI will conduct open market operations (OMOs), or purchase of government securities, following a request from the central government.
The rally in bond prices came amid a Reuters report that said the Centre has urged the RBI to either conduct a switch operation — investors exchanging their short dated bonds for those with longer maturity — or buy back government bonds within the next two weeks to cool down yields.
The government is understood to have claimed that it is not nudging the central bank to intervene in the markets. But the move comes amid a record government borrowing programme of Rs 14.95 lakh crore in this financial year.
Bond yields have climbed particularly after the surprise 40 basis points hike in the repo rate by the RBI last week. The yield on the benchmark 10-year bond had almost hit 7.50 per cent on May 9.
However, they closed at around 7.47 per cent on May 9, dipped further to 7.30 per cent on Tuesday and settled at around 7.22 per cent on Wednesday.
While the RBI is yet to announce any OMO, it has been seen supporting the rupee albeit intermittently over the past couple of sessions particularly after the currency breached the 77 mark to touch a historic low of 77.53 on Monday.
In Wednesday’s trade, the rupee gained 9 paise to close at 77.24 against the dollar compared with the previous finish of 77.33 to the greenback.
Forex circles said the rise in the Indian currency followed a dollar index — which measures its strength against a basket of six currencies — that was flat ahead of the release of US inflation data even as crude prices were soft on apprehensions of a slowdown in global economic growth.
According to a note from IFA Global, the expectations are that a softer CPI (consumer price index) print in the US might pause the dollar's present bullish trend.
“The rupee has strong resistance at 77 and support at 77.75 as the dollar index trades range-bound between 103-104 awaiting triggers from CPI inflation data,’’ Jateen Trivedi, senior research analyst at LKP Securities, said .