Rupee Takes Centrestage

There has been a sudden shift in the market’s mood. Until a few weeks ago, there were talks of the Indian stock market scaling new highs, and now it is heading southwards without any resistance. There are many tailwinds that are leading to such a fall in the market.

The rupee has once again come into focus in this scenario, witnessing a sharp drop in the last one month. The currency has fallen by six per cent and has touched its all-time low against the USD. The exodus of foreign capital from debt markets has accelerated the rupee’s plunge over the past few days. Year till date, the debt inflows have been USD 2.3 billion after outflows of USD 3.3 billion from May 22, 2013. This again exposes India’s structural problems and will accentuate the already worsening Current Account Deficit problem, which will in turn add further pressure on the rupee. The impact will be not be limited only to government finances but will also extend to corporates that have a larger forex denominated debt sitting on their balance sheet. India Inc.’s seemingly smart strategy to take advantage of lower interests rate abroad is now backfiring following such volatility in the rupee.

The recent upgrading by credit ratings agency Fitch could not have come in at a more opportune moment. After all, the steps taken by the Government of India in the last nine months are bearing fruit. In a surprising move, Fitch has upgraded the credit rating of the country to BBB- with a 'stable' outlook. This will lend much-needed support to the rupee. Nonetheless, more credible steps are required to be taken so that we can hope for further upgrades and other credit agencies to follow suit.

Our cover story in the issue slices and dices the result of India Inc. for Q4FY13. The numbers were lower than expected and disappointed the street. Against the expectation of three-five per cent bottomline growth, the actual growth came in below one per cent. Real estate, power and metals were the sectors that pulled down the performance, whereas consumer durables, FMCG and IT took it up. The topline has also increased by merely 6.9 per cent.

However, there are signs of green shoots emerging, which paints a rosy picture ahead. The depreciation charges have improved on a yearly as well as a sequential basis, which reflects the uptick in investment. In addition to this, we have seen the interest cost also coming down, dropping by 2.76 per cent on a sequential basis. This largely shows that the interest rate cuts effected by the RBI are slowly permeating into the system. We may see further moderation in the interest burden going forward.

In view of the broader trends, our stock recommendations are from sectors that have been doing well in these volatile times. The Low Priced Scrip recommended is a company from the IT sector – Helios and Matheson Information Technology – which will see its profitability increasing as the company has been improving its debt conditions that were hampering its performance. The Choice Scrip is Bata India, the top footwear brand in India which is in an expansion spree.

Another important development in the last fortnight was the Union Cabinet’s nod to the much-awaited Real Estate (Regulation & Development) Bill 2013. Naushad Panjwani, Senior Executive Director, Knight Frank gives an overview of the nuts and bolts of this bill and provides a view on the implications of this bill.

This issue also carries a special feature on the Bangalore Management Association’s 60th Anniversary Awards, with top management professionals sharing their views and snippets of the glittering awards ceremony held on June 6, 2013. The awards have been instituted to honour key players in the management circle.

To help the readers of our magazine benefit from DSIJ’s rich online content, we are also introducing a page that provides a roundup of the best articles that appeared on our website in the last fortnight. We encourage you to catch up on the full versions of these ‘Mindshares’ on www.DSIJ.in

Coming up in the next fortnight is the all-important RBI meeting, which I feel will be a non-event as the recent rupee depreciation along with higher CAD for the month of May will restrict any assertive action on the interest rate front. As the results season is over now, the future course of market will be driven by the RBI’s policy announcement and the rupee’s trajectory.