Fears of a return to capital control regime spoked investors, sending the equity market into a tizzy on Friday when the Sensex and Nifty crashed and the rupee plummeted to a new low.
The Sensex fell 769.41 points, or 3.97 per cent, to 18,598.18, leaving investors poorer by more than Rs 2 lakh crore.
The rupee breached 62 for the first time, falling to 62.03 to a dollar before recovering to close at a record low of 61.65.
Today’s was the biggest fall since July 6, 2009, when the index plunged 869.65 points.
All the broader and sectoral indices closed in the red with consumer durables, realty, metals, banks, capital goods and energy stocks being the worst hit.
The ratings agency Moody’s Investors Service on Friday downgraded Bank of Baroda, Canara Bank and Punjab National Bank from stable to negative.
Investors were also disappointed with the RBI’s inability to contain the rupee’s fall and feared that an improving US economy would result in the flight of foreign capital from the domestic markets.
To restrict the outflow of foreign currency, the RBI had on August 14 announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians.
Gold gained the most in two years on Friday. Standard gold of 99.5 per cent purity strengthened by Rs 1,175 to end at Rs 30,695 from Wednesday’s closing level of Rs 29,520 per 10 gm. Silver shot up by Rs 2,970 to end at Rs 49,980 a kg from Rs 47,010 previously Arun Kejriwal, Founder, KRIS Research, said, “The apparent rift between the RBI and the Finance Ministry, an imminent sovereign ratings downgrade coupled with news flow about Axis Bank being dropped from MSCI index and the expectation that the US quantitative easing would certainly cease to exist in its present form as early as September, unnerved markets.”
“There could be a bounce early next week but it would certainly not mean a bottom out,” he added.
Fear of further capital controls by the RBI saw foreign institutional investors (FIIs) taking the exit route from the bourses and sold Rs 563 crore in the net.
The total volume logged in by FIIs on Friday was Rs 9,227 crore (Rs 4,337 crore on the buy side and Rs 4,890 crore on the sell side).
The Confederation of Indian Industry said th RBI’s cap on outward investment (down from 400 per cent of net worth to 100 per cent of net worth, for companies) would be a dampener to India’s global aspirations.
It hoped that these measures would be revisited soon enough and status quo would be restored. Outward investment by India has progressively come down from $16.5 billion in 2010-11 to $7.1 billion in 2012-13, the CII said.
Stocks in red
Among the stocks that touched their 52-week lows were BHEL, State Bank of India, Multi-Commodity Exchange Ltd, MTNL, Larsen & Toubro and JSW Steel.
Under such conditions, Hero MotoCorp, PowerGrid and HCL Tech were the three Nifty scrips that bucked the trend and closed in the green.
Domestic institutional investors could not match the FII onslaught as they did a turnover of about Rs 3,150 crore, though they were net buyers of Rs 732 crore worth of equity.
Retail investors on the BSE were net buyers of equity worth Rs 61 crore, doing a volume of about Rs 2,400 crore.
“Today’s fall was steeper due to the fact that yesterday (Thursday) was a trading holiday,” said Ashish Choudhary a retail investor.
Prakash Diwan of Asit C Mehta Investment said: “Downgrades have begun with banks and will spread to specific instruments and the country as a whole. But between now and the possible downgrade, we might see a flight of capital from FIIs if US treasury bonds keep increasing as the dollar firms up. However, it would not be a large structural shift as it would involve movement across geographies and asset classes, at the same time no fresh inflows are expected,” he added.
The three key triggers FIIs would be looking out for would be a reversal in rupee direction, taming of inflation which would stop interest rate hardening, and the bottoming out of corporate earnings, Diwan said.
JP Associates, BHEL, Axis Bank, Bank of Baroda and Reliance Infra were the top five Nifty losers on Friday.