- RBI conducts auction of Rs.8000Cr to enhance liquidity.
- Markets register biggest single-day loss since Sep’30, in the middle of the week.
- Fears of QE taper by the US-Fed return to haunt markets.
- Forex reserves pile-up as the special swap window for FCNR(B) deposits allowed by the RBI nears its end.
Riding on the past week’s optimism, the markets started with a big positive note which was further aided by the OMOs conducted by the RBI to enhance liquidity. Although the RBI fell short of its targeted liquidity enhancement as it was able to buy only 77% of the Rs.8000Cr of bonds, it nevertheless was able to boost moods for quite sometime.
Fears of QE taper came back to haunt markets as the FOMC meet suggested that in a few months time, the Fed may start to go slow on its bond buying programme as it expects the economic situation to be consistent. The Indian markets followed other emerging markets to delve deep into the red-region and registered the biggest single-day loss since September 30th.
In other developments, it was reported that the country’s forex reserves now stood at $283.6bn which is the result of increased activity by banks to take advantage of the special swap facility of the RBI for FCNR(B) deposits which is going to close on Nov’30.
The next week consists of mixed signals as the markets will wait for more news about the intended QE taper and a possible start date for the tapering of US-Fed monetary stimulus programme. It is wise to watch the performance of other emerging markets and asian markets in particular as Indian markets will generally tend to follow suit.
Domestic participation in markets is still not much. The present swings that the market is experiencing is all due to FII activity who are more active in selected index stocks and future segments. The fundamentals of the economy are not so much effecting the markets as the volatility created by the inflow and outflow of FII funds.
Also, the next week is the last week before the closure of the swap window for the FCNR(B) deposits by the RBI. Technically, this closure should not have any effect on the currency situation but nobody can really predict market sentiment.
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