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The Finance Minister, Mr Pranab Mukherjee, has attributed the stock market crash to withdrawal of funds by foreign institutional investors (FIIs) and depreciation of the rupee.
“Markets have crashed because of continuous withdrawal of (funds by) FIIs. There is still uncertainty prevailing in the Euro-zone. Rupee depreciation also has an adverse impact. All these cumulative effects are there,” Mr Mukherjee told reporters here.
Foreign funds had heavily sold Indian shares in September and October, putting more pressure on the rupee, he noted. The sharp decline in rupee has been driven by capital outflows amid Euro-zone worries.
The increased uncertainty in the Euro-zone on account of sovereign debt crisis has led to shifting of capital from Europe to the US and this has hardened the dollar against most currencies, Mr Mukherjee had told Lok Sabha on Tuesday.
The rupee has weakened more than 15 per cent since April and touched a record low of Rs 52.72 on Tuesday, making it the worst performing currency in Asia.
Investor confidence has been dampened by fresh concerns on the health of the global economy, following downward revision of the US growth rate in the third quarter of 2011.
The Sensex crashed 365 points on Wednesday on heavy FII selling and amid concerns of weakening rupee and heightened global uncertainty.
Later in a statement, Mr Mukherjee said that the Reserve Bank of India was closely monitoring the rupee situation and expressed confidence that the central bank would do the needful.
Despite global uncertainty, foreign institutional investors' investments have been in the positive territory in October ($634 million), November and as of yesterday ($213 million), he said.
Mr Mukherjee said that India's growth and fundamentals are strong and they look more attractive. This remark came soon after benchmark indices lost 2.5 per cent as of 2 pm today as overseas markets declined on concerns over US third quarter growth and high yields on Spanish bonds.
On rupee, he said that the volatility in the rupee was keeping investors nervous, although today the rupee recovered from a low of 52.73 to trade at 52.12 a dollar.
The Finance Minister said that against an expectation of a more modest revision, the third quarter US GDP growth was revised downward to 2 per cent from the advance estimate of 2.5 per cent. As a result, the US markets closed lower by 0.5 per cent yesterday.
Asian stocks also fell 2-2.5 per cent, after a mining tax was approved in Australia's lower house of Parliament, and due to lingering concerns on Europe.
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