Indian stock markets pared their losses in the afternoon trade as trade deficit narrowed sharply for the month of October. The trade data, which was released at around noon today, said India's trade deficit fell sharply to $10.56 billion in October, from $20.21 billion a year ago. A rise in exports and subdued gold imports helped the trade deficit to narrow sharply this October.
At 1.15 pm, the Sensex was down 31 points at 20,635.49. At its day's low, the Sensex fell as much as 183 points when it hit 20,482.41 in early trade. The Nifty was down 16 points to 6,124.65.
The weak rupee and worries about US tapering continued to weigh on sentiments. The rupee was down at a seven-week low of 63.24.
The US jobs data for October, which was released on Friday, came in much stronger than expectations, raising the prospect the Federal Reserve may soon decide to start winding down its $85 billion-a-month bond-buying programme.
The partial return of India's state-run oil marketing companies (OMCs) to the currency market, instead of the special window provided by the central bank, has also weighed on the rupee.
Adding to the rupee decline, the RBI's special concessional window to swap Foreign Currency Non-Resident (Banks), or FCNR (B) deposits, will also close at the end of this month. The RBI had introduced this window in early September to check volatility in the rupee.
"The rupee is showing continued signs of depreciation given the headwinds pertaining to the OMCs dollar buying and window for FCNR closing by the end of this month," says Deven Choksey, managing director of domestic brokerage KR Choksey.
Mr Choksey sees downside pressure on the Nifty in the near term. "Foreign funds are not unlikely to take long positions in the Indian market in a big way due to the rupee weakness. The Nifty would remain range-bound with pressure on the downside," he said.
Foreign funds have been the major drivers for taking Indian markets to new highs this year. They have purchased over $16 billion in Indian equities so far this year.
"The corrective downside on the Nifty could be between 6000-6050 and corresponding fall in the rupee could be 64-64.50. Both of these could synchronize and at such point of time buying interest could come back into the Nifty," Mr Choksey said.
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