Fear of sovereign rating downgrade due to fiscal slippages and a weakening rupee saw the benchmark indices, the Nifty and the Sensex, fall by over 2.3 per cent on Tuesday. The rupee touched an all time intra-day low of Rs 61.80/$, before closing at Rs 60.77.
While the Nifty closed at 5,542, down 142 points, the Sensex ended at 18,733, down 449 points. All rate-sensitive sectors were battered, with the worst being consumer durables, realty, banks, metals and power.
All the sectoral indices on both the NSE and the BSE closed in the red. The volatility index India Vix closed at 22.73, up 9.28 per cent. Ambuja Cement, Tata Motors, Powergrid and TCS were the only four Nifty gainers.
FIIs net bought equity worth Rs 213 crore, while DIIs (domestic institutional investors) net sold equity worth Rs 324 crore. Retail investors on the BSE net sold equity worth Rs 7 crore.
According to agencies, India slipped out of the elite global league of stock markets with a trillion-dollar valuation, as the total value of all its listed companies fell to $989 billion as selling pressure mounted. At the end of today's trade, the total market capitalisation of all listed companies fell to Rs 60,18,503.88 crore ($989 billion).
The free-fall, according to Abhishek Goenka, Founder and CEO, India Forex Advisors, “was seen after the rupee touched 66-plus levels in the offshore market, making the speculators buy heavily in the spot market.”
Varun Goel, Head-Portfolio Management Services, Karvy, said the pressure on the rupee is expected to continue in the short term. While the current account deficit remains high, the weakening fiscal situation also revives the threat of sovereign downgrade. To ease the deficit, he said, gold imports need to be curbed. Till such time, the rupee might continue to fall.
Marketmen said the likelihood of rising input costs in the coming quarter would erode the operating profit margins of companies.
In a report, Sonal Varma of Nomura said this trend of margin compression is expected to continue. The risk is not only from currency weakness (higher input cost), but also from higher cost of working capital, because the RBI is using higher interest rates to defend the currency.
Lower margins will affect profitability and deteriorate credit quality, thereby worsening both employment and investment prospects, in turn, hurting India’s growth potential. We forecast GDP growth at a below-consensus 5 per cent year-on-year in FY14 and see turbulent times ahead, she said.