Rising tensions in Syria and a threat of a sovereign downgrade sent the stock markets and the rupee nosediving on Tuesday. The BSE Sensex fell 651 points or 3.45 per cent to end at 18,235, snapping a four-day rising streak, on massive selling as the rupee once again breached the 68-mark to the dollar.

Investor wealth fell by over Rs 1.63-lakh crore in a single trading session.

The stock indices saw the biggest fall in over a fortnight, after investors were spooked by the Russian media reports of missile launches in the central Mediterranean Sea.

The report came amid concern over military action in Syria. However, Israel said it had carried out a missile test jointly with the US in the Mediterranean.

Brokers said across-the-board selling was triggered by a report that Standard & Poor’s had said chances of a credit rating downgrade for India were higher than for Indonesia. The rupee opened at Rs 66.3 to the dollar, fell to Rs 68.27 before closing at Rs 67.65.

The Nifty closed at 5,341, down 209 points, or 3.77 per cent.Yield on benchmark 10-year G-secs touched a high of 8.68 per cent before closing at 8.58 per cent, up 11 basis points.

Gold prices rose 2.36 per cent and oil prices increased more than 2.6 per cent. Gold futures on MCX quoted at Rs 33,900 for 10 g, up 2.53 per cent. International gold futures price on the Comex for December delivery rose to $1.406.20 an ounce.

Brent crude oil prices for spot delivery quoted at $115.09 to a barrel after having touched a high of $117.

An IDBI Bank official said: “The direction of the rupee depends on the developments in Syria and the US Federal Open Market Committee meeting on September 18 which will decide on the tapering of the quantitative easing.”

Echoing a similar view, Anindya Banerjee, Currency Analyst, Kotak Securities, said: “Over the near-term, fears of Fed tapering and tensions in West Asia could put the rupee under pressure with risk emerging for a sell-off beyond 69 levels on spot.”

Arun Kejriwal, Founder, Kris Research, said, “The West Asia crisis affects the globe as much as it affects India. However, today’s market movement showed that India was the only market that was affected with the benchmarks breaching the four per cent levels intra-day before weighted average close, clearly showing that we have enough internal problems affecting the rupee, economy and therefore the markets.”

Nirakar Pradhan, Chief Investment Officer, Future Generali Life Insurance, said, “Weak growth, FII outflows, high inflation and increasing oil prices are bound to tighten liquidity and hence raise interest rates. With the RBI not wanting the long-end bond yields to harden, it might announce fresh open market operations, if the situation so warrants.”

Stock markets were volatile with the volatility index India Vix, closing at 32.49, up 18 per cent.

(This article was published on September 3, 2013)
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