It was an extremely volatile session this week, as benchmark indices lost heavy ground, thanks to a roller coaster ride for the Indian rupee and a crash in the stock price of DHFL.
The currency dropped to a low of Rs 72.97 against the dollar, only to recover sharply and close the week at 72.20, as global cues remained supportive on Friday. The support measures announced for the rupee by the government last week, failed to offer any cheer to the currency markets.
The week saw massive falls on Monday and Tuesday, with follow-up selling seen on Wednesday. Thursday was a holiday and Friday saw solid gains at the start, only to see a 1,100 points collapse on the Sensex in the noon session of trade. The week ended with a huge loss of 3.26 per cent on the Nifty, something that we do not see that often.
Friday was a very interesting day of trade. The Nifty at one stage lost almost 340 points and the Sensex lost 1,100 points on some adverse reports of DHFL. This led to the stock plunging 60 per cent, even though the management clarified that there was absolutely nothing wrong with the company.
According to reports DSP Mutual Fund had sold the AAA rated paper of DHFL at a yield of 11 per cent, which probably triggered a collapse in the share price of the company. DSP has clarified that this was to meet redemption that the fund was facing due to advance tax and GST.
Another stock that was hit during the week was Yes Bank. The shares fell a huge 30 per cent on Friday, after reports that Rana Kapoor would be granted extension only till Jan 2019.
Indian benchmark indices are expected to remain increasingly volatile next week, as rupee, crude and the US Fed decision on interest rates continue to dictate the trend.
The US Fed is expected to decide on interest rates coming Wednesday. In all probability the US Fed would hike interest rates. This may put increased pressure on the markets, as yields in the US too have been constantly been rising.
One characteristic of the week was the huge selling seen by Foreign Portfolio Investors, particularly on Wednesday. If the selling continues, domestic institutions may not be able to absorb the selling pressure, as inflows into mutual funds has gradually been reducing.
The problem for the markets right now is also the fact that interest rates are rising. Good quality company FDs can offer you yields of as much as 10 per cent. This means investors now have a choice and can also consider FDs. It is also certain that the RBI would hike interest rates in its policy meeting of Oct. This is not good news for investors. If you have made decent profits over the last one year or so, it maybe a good time to consider moving money from debt to equity.