Home / Market / Stock-market-news /  Sensex tanks 449 points as rupee slides to new record low

Mumbai: Investors rushed to sell equities, pulling down India’s key equity indices more than 2% on Tuesday, as the rupee tumbled to a record intra-day low. The rupee then staged a dramatic recovery to end stronger, thanks to central bank intervention and cheered by the announcement of Raghuram Rajan as the Reserve Bank of India’s (RBI) next governor.

That didn’t stop the market capitalization of BSE, Asia’s oldest bourse, from sliding below the $1 trillion mark to $990 billion for the first time since December 2011.

The 30-share BSE Sensex, India’s benchmark equity index, closed 2.34% down at 18,733.04 points, its lowest close since 26 June. During the day, it had fallen as much as 2.68% to 18,667.30 points. The 50-share Nifty fell 2.52% to 5,542.25 points.

The rupee slid to a record of 61.81 per dollar and then recovered to close at 60.81. Dealers said RBI sold the US currency in the market and a large corporate group converted dollar earnings to cash in on the attractive exchange rate. 

Since January, the rupee has weakened 9.56% and has lost the most among Asian currencies after the yen.

NSE’s VIX or volatility index rose as much as 9.38% during the day to 22.75, its highest level since 15 June 2012, hinting that the market could face volatile swings in the days to come after the rupee protection measures failed.

“It is very hard to take a call on where the market could be headed in the near term. The focus is on rupee and investors are disappointed by the helplessness of RBI in curtailing the free fall," said Gautam Trivedi, managing director (MD) and head of equities (India) at Religare Capital Markets Ltd.

Last month, RBI capped individual bank borrowing limits at 0.5% of deposits and made it mandatory for banks to maintain 99% of the cash reserve ratio, or the portion of deposits that they are required to keep with the central bank, on a daily basis, against the earlier 70%. These steps were announced after the first set of measures failed to lift the rupee.

The “tightening implies growth recovery delayed for now and earnings cuts ahead", UBS AG analyst Gautam Chhaochharia wrote in a report on Tuesday. “Recent moves in the rupee and the RBI measures have brought tail risk to the fore." UBS cut the trading range for the Nifty index to 5,250-6,100 points from 5,500-6,400 previously.

“It remains to be seen as to what steps RBI takes from here on," Trivedi of Religare said in a phone interview.

A PTI report said that the government informed Parliament on Tuesday that it had taken a series of steps to check forex volatility and is monitoring the situation.

Foreign institutional investors, who were net buyers of Indian equities for the first five months of 2013, sold a net $1.8 billion and $988 million of stock in June and July, respectively, as contracting emerging market economies and sliding currencies diverted their interest to developed economies that seem to be on a growth path.

The growth in gross domestic product in Asia’s third largest economy slowed to a decade-low of 5% last fiscal year, the slowest since 2003. Signs of a recovery are becoming sparse—CLSA is the latest brokerage firm to cut the economic growth forecast for India, reducing it to 5.2% from 5.5% on Tuesday.

BSE’s Bankex, the index for the banking sector, shed 3.9% to its lowest level since June 2012, as the outlook for banking stocks turned bleak in light of fears that RBI may tighten liquidity further to shore up a depreciating rupee. Higher non-performing assets in the June quarter report card also weighed on investor sentiment. The Bankex has dropped 23% year to date—its biggest fall in a similar period in five years.

Mortgage lender Housing Development Finance Corp. Ltd led losses on Sensex with a 5.9% decline. Leading private lenders ICICI Bank Ltd and HDFC Bank Ltd shed 4.03% and 3.91%, respectively.

A total of seven companies out of 30 in the Sensex saw their shares touching at least a year’s low. These were Larsen and Toubro Ltd, Tata Steel Ltd, State Bank of India, Bharat Heavy Electricals Ltd, ICICI Bank and Tata Power Co. Ltd.

Of the BSE 500 companies, 132 recorded their 52-week low.

Rupee’s recovery

The rupee’s recovery was also aided by a relatively calm dollar, which was trading marginally lower against major global currencies. At the time of market close in India, the dollar index, which measures the US currency’s strength against major currencies, was trading at 81.788, down 0.1% from the previous close.

Currency dealers don’t see the rupee holding on to its gains.

“The rupee will continue to be under pressure. It is now evident that liquidity induced speculation is not the root cause of currency weakness," said Manoj Rane, MD and head of fixed income and treasury at BNP Paribas. “As long as we have our CAD (current account deficit) problem, and capital outflow due to QE (quantitative easing) tapering off fears (on the part of the US Federal Reserve), currency will be under pressure. Along with a long-term fix, we need to have a short-term solution… maybe NRI bond issuance, etc. to stabilize rupee."

The current account deficit in the last fiscal was 4.8% and the government intends to bring it down to 4.2% this fiscal year.

According to Satyajit Kanjilal, MD of currency consultancy firm Forexserve, RBI’s strong reaction could have led to a small reversal in the currency level.

In the absence of a good set of economic numbers, the currency will continue to suffer, said Arvind Sampath, head of treasury at Fullerton India Credit Co. Ltd. “Barring any intervention measures by the Reserve Bank, rupee will be under pressure in the absence of pull factors such as strong industrial growth numbers to cheer up foreign investors," he said.

Sunil B.S. and Bloomberg contributed to this story.

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