A day after the Lok Sabha passed the UPA government’s flagship Food Security Bill, the markets gave the mega welfare programme a huge thumbs down Tuesday over fears that it would further hurt the economy.
The rupee continued with its weakness and breached the 66 mark against the dollar, falling by 3 per cent during the day to close at a new low of 66.24. The benchmark Sensex at the Bombay Stock Exchange broke its three-day surge and fell by 590 points or 3.2 per cent to close below the 18,000 mark at 17,968.
The broader Nifty at the National Stock Exchange fell by 189 points or 3.45 per cent to fall below the 5,300 mark and close at a 11-month low of 5,287.5.
The fall was also precipitated by an outflow of foreign institutional investor funds as sentiment weakened. According to BSE data, they pulled out a net Rs 1,374 crore from the equity markets Tuesday.
Tuesday’s intraday rupee fall of 3 per cent is the biggest in 18 years and it was the biggest loser against the dollar during the day and a clear outlier with a 3 per cent fall. In comparison, the Mexican Peso was down 1.24 per cent while the Brazilian Real fell by 0.8 per cent against the dollar.
While the rupee continues to fall and make imports, foreign travel and education even more expensive for Indians, experts suggested that investors should stay away from the stock market as there is a lack of certainty on when and where the slide will stop. “It is hard to say how much more room there is to fall,” said Jamal Mecklai, of Mecklai Financial Services.
Tuesday also saw gold and silver rising sharply. Gold Standard closed at an all time high of Rs 32,585 per 10 grams while silver closed at a six-month high of Rs 56,670 per kg.
The weakness in the rupee and the Lok Sabha’s approval of the government’s $20 billion plan to provide food to the poor at rock-bottom prices triggered the market slump.
Even as Finance Minister P Chidambaram reiterated that the fiscal deficit target of 4.8 per cent of the GDP would not be breached, the market did not take the argument at face value and questioned the government’s ability to meet the fiscal deficit target.
“The food security programme motivated by populist drives is a serious threat to the fiscal deficit. Any spending on food close to the