Rupee back on the rise against the US Dollar... Gold Skyrockets!!

Rupee on Tuesday appreciated against the U.S. dollar and closed at a five-week high of 40.56/57 driven by expectations of strong capital inflows and weak dollar overseas.

The interbank foreign exchange market also witnessed exporters’ dollar selling at the current level in fairly active trading. The rupee moved in a range of 40.54 and 40.64 after resuming firm at 40.55/56 a dollar against Monday’s close of 40.67/68.

Traders expected heavy inflows through the forthcoming initial public offer by a government-owned Power Grid Corporation, which opened on September 10, forex dealers said.
IT IS truly sad to watch the plight of technology stocks today. How the mighty have fallen. For people who have seen the power of this sector in the heydays of the tech bubble, it is difficult to digest the complete apathy with which they are treated today by investors.
They have become pariahs. Just for a day or two, when the ECB restrictions came in and the rupee darted back to 41 to the dollar, it looked like their pain may be nearing an end. How short-lived that relief has been. At the first sign of strength in the rupee, these stocks have plunged again.
To be sure, not everyone is bearish on IT stocks. A lot of institutional investors are still holding on faithfully to their Infosys and Satyams. It may appear surprising but most of the brokerage (sell side) analysts are actually very bullish on the sector. Many of them still have targets of 2,500-2,700 on Infosys and 1,500 on TCS. Sure, such calls have been horribly wrong for the last 6 months but they haven't changed their minds yet.
Investors from the buy side though have been far more circumspect, a fact reflected in the price performance of the sector. The jury is still out on whether a long-term derating of the sector is underway and analysts are merely in denial or this is a temporary mispricing by the market, which will get corrected.
The arguments for and against the sector i.e. rupee, US economic conditions etc. are well known so I won't dwell on them. My sense though is that the October quarter is crucial for the sector. It is traditionally the strongest quarter for IT companies and the rupee too has been relatively stable. If Infosys comes out with a very strong set of numbers and a very bold, confident assertion that things are alright, we may at least witness a meaningful pullback. If that doesn't come through, one fears for IT investors. Even patient investors may then throw in the towel and the consequent pain could be even more wrenching.
The spot rupee opened stronger at 40.61/62 against its previous close of 40.66, propelled by inflows towards the IPO of Power Grid Corporation and the bond issue of Power Finance Corporation, said dealers. Foreign and private sector banks were selling dollars, which saw the rupee reaching a high of 40.54/55 before ending the day at 40.56/57 to a dollar. Dealers said that at every upside of the rupee-dollar exchange rate, oil companies were seen buying dollars for oil payments . “If oil companies were not buying, the spot rupee could have touched 40.50 to a dollar, “ said a dealer.

The annualised premium for booking forward dollars inched up higher and closed for six-month and one-year dollars at 1.62 per cent and 1.74 per cent against 1.29 per cent and 1.40 per cent on Tuesday respectively. The firming up of the annualised premiums is attributed to the perceived tightness in rupee liquidity.

Money: Liquidity stays comfortable

Liquidity remained comfortable but the market was apprehending a tightness after the advance tax outflows. According to the dealers, the RBI accepted around Rs 22,000 crore from the market against Rs 27,000 core on Monday.

Call, the rates at which banks lend and borrow for their daily fund requirement, closed around 6.05 per cent. The funding rates in the collateralised lending and borrowing market (CLBO) also remained around 6 per cent and marginally came down below 6 per cent to 5.95 per cent during the day. NamesakeDomains.com

As against daily volumes of Rs 19,000-20,000 crore , the CLBO market clocked transactions of only Rs 12,000 crore.

G-sec: Prices fall

There are couple of factors that bogged down the sentiment in the government securities market. Crude prices went up to a high of $78 a barrel and the expected advance tax outflows played spoilsport, said a dealer. Going by the decline in the amount of surplus liquidity parked under the reverse repo route, the market is nervous, he added.

OIS and corporate bonds: Advance tax blues

The interest rates on the short end of the maturity went up sharply by 10-15 basis points. There was cautious trading in the secondary market. In the long tenure category, investors are preferring to wait for newer issuances at higher rates. In the short term, mutual funds are facing redemption from corporate clients and banks, which have to get prepared for advance tax payments.

The three-year segment has witnessed yields moving up from 7.75 per cent to 8 per cent, followed by nine-month where yields have gone up from 8.50 per cent to 8.65 per cent. Similarly, the one-year segment is offering certificates of deposits and commercial papers at 8.95 per cent, which was 8.75 per cent on Monday.

Global markets: Dollar loses ground

Dollar lost to all major currencies following the weak non-farm payroll data and expectations of rate cut in the forthcoming interest rate policy meeting of the federal reserve . GBP and euro figured at $ 2.0333 ( $ 2.0320) and $1.3826 ( $ 1.38) .

Yen was at $113.82 ( $ 113.55)