Pain peaks as rupee suffers biggest fall of year, Sensex tanks 769 points

PALAK SHAH Mumbai | Updated on September 04, 2019 Published on September 03, 2019

Fears over PSU bank mergers, poor growth numbers continue to roil the markets

The fear of likely capital outflows as a consequence of the economic slowdown is now playing on the minds of stock market investors. The slide in stock prices continued on Tuesday despite assurances by Finance Minister Nirmala Sitharaman over the past couple of weeks that the government is ready to bring in policies to revive growth.

On Tuesday, the benchmark indices Sensex and Nifty crashed by over 2 per cent even as the rupee registered the biggest single-day fall against the dollar this year. Foreign portfolio investors (FPIs) sold stocks worth ₹2,016 crore in the cash segment, provisional data showed.

The Sensex fell by 769 points, or 2.04 per cent, to close at 36,562. The Nifty, a broader index, was down 225 points, or 2.04 per cent, to close at 10,797. The rupee opened 0.55 per cent lower at 71.95 against the dollar versus Friday’s close of 71.40. Later in the trading day, it fell by 100 paise to 72.4.



Lifetime low

The rupee had hit a lifetime low of 74.48 in October 2018. Tuesday marked its lowest point this year. A sharp slide in the currency leads to incremental selling by FPIs as a kneejerk reaction, experts said. India has a currency swap agreement with Japan under which the latter will buy a certain amount in rupees, which could avert a further slide, they added.

“A slew of government announcements came after much ado, delay and post-collateral damage of company valuation in the stock market. All this could take some time to reverse since the extent of damage is high, global factors are not supporting and the flight of capital has been triggered due to the weakening of the rupee,” said Deven Choksey, founder and promoter of KR Choksey Investment Managers. He is of the view that stock market investors are forced to sell as they can no longer just watch the erosion in the value of their portfolio and this is causing major crises.

Last week, the first-quarter GDP growth was recorded at 5 per cent, the lowest in six years. The markets were closed when the numbers were reported, and the reaction to it was seen on Tuesday.

Manufacturing expansion, too, hit its slowest pace in 15 months in August. The Nikkei Manufacturing Purchasing Managers’ Index declined to 51.4 in August from July’s 52.5, its weakest since May 2018. Yet, there was a silver lining as the index remained above the 50 mark.

Recent measures

The Centre, in recent weeks, has announced the reversal of tax surcharge on FPIs, mega PSU bank mergers and a re-capitilisation plan. The RBI recently announced the transfer of ₹1.76-lakh crore of its reserves to the government.

“It is a dicey call to take on markets if one wants to initiate further short position from the current levels just looking at the bearish sentiments. Markets trade on a forward looking and earnings basis. It will have to be seen for a quarter how recent government announcements and further policy shape up,” said the head of institutional desk at a leading Mumbai brokerage.

Global factors have not helped the markets either. The US-China trade war has been simmering. Last week, after US President Donald Trump tweeted that talks between the two trade rivals could move to a higher level, and China announced the halting of its retaliatory moves, there was some calm in the markets.

On Tuesday, major stock indices in the US were trading more than 1 per cent lower as the manufacturing report there came in lower. Also, new hiked tariffs on Chinese goods being sold in the US came into effect on Sunday. Experts say any hint of a trade deal or halt in retaliatory moves could arrest a fall in global equities.

Published on September 03, 2019
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