Indian equities posted their biggest two-day fall in nearly five years on Monday as the rupee?s fall to a record low, a spike in bond yields to a five-year high and weak Asian markets drove the benchmark BSE Sensex index lower by more than 1,000 points over a two-day period.
The rupee hit a record low of 63.23 against the dollar on Monday before closing at 63.13/$, driving the benchmark Sensex down 291 points or 1.56% at 18,307. The Nifty ended lower by 93 points to 5,414. Since Friday, the Sensex is down a whopping 1,060 points. On Friday, a weak rupee coupled with a drop in US jobless claims had driven the Sensex to post its biggest single-day point decline of 769 points since July 2009. The Sensex is now down 1,994 points, or 9.82%, since July 23 and is down 5.76% in the year to date.
The rupee?s sustained fall comes despite the RBI?s measures to introduce restrictions on overseas investments by corporates and curbs on forex remittances by resident Indians. This has led to fears that the central bank may consider more traditional forms of capital controls on outflows of foreign capital.
?Everything that is negative out there is being played out currently,? said Andrew Holland, CEO, Ambit Investment Advisors. ?There is lot of confusion among market participants at the moment surrounding the policies that the RBI and the government are pursuing to stem the rupee?s fall. Investors are worried over what measures might be used next.?
According to Bank of America Merrill Lynch, the currency is the single biggest factor making investors nervous on India. ?A stabilisation of the currency would make us as well as investors more positive on India. While the government has taken a series of steps to stabilise the currency, it has not worked, partly due to nervousness on the Fed tapering. Even after the start of these measures, India is the third worst performing currency amongst EMs,? said Bank of America Merrill Lynch analysts Jyotivardhan Jaipuria and Anand Kumar in a note on Monday.
According to data from Bloomberg, the domestic currency has declined more than 13% since May 22. Since then, FII sentiments have dumped shares worth about $1.7 billion. The overseas investors had bought $14.5 billion worth of shares between January 1 and May 22.
?The market is in a bad shape. Everything from the currency depreciation, fiscal deficit, policy flip flop, liquidity tightening to dismal earnings is contributing to the pessimism of investors,? said Raamdeo Agrawal, co-founder and joint MD at Motilal Oswal. FIIs have not sold heavily in the past two sessions. On Monday, FIIs sold $107 million worth of shares, adding to the $91 million they sold on Friday. Bank of America Merrill Lynch cautioned that any significant sell-off from overseas investors could bring the markets crashing down as the FII ownership in Indian markets is at an 8-year-high.
While most of the major Asian markets have been suffering, India remains the worst performer within the continent in the year to date. The BSE Sensex has shed 18.49% in dollar terms even as China’s benchmark index Shanghai Composite has fallen only 6.46% in the current calendar year. The Hang Seng (-0.91%), Taiwan Taiex (-0.63%) and Kospi (-8.60%) have also been under pressure owing to the fears of QE tapering. Only, Japan’s Nikkei 225 has gained 17.19%.
However, experts see a few silver linings for the Indian market. ?In the near term, the correction in crude oil prices and some form of monetary easing by the central bank post stabilisation of the currency could be the two possible positive triggers,? Manish Gunwani, senior fund manager, ICICI Prudential AMC.
Among its peers, most of the key Asian indices ended in the red on Monday. Jakarta Composite lost the most at 5.5% due to weak economic data. Nikkei 225 and Shanghai Composite bucked the trend gaining 0.79% and 0.83%, respectively.
Back home, 24 of the 30 Sensex stocks ended in the red. The wider market breadth was also weak as more than 57% or 1,401 of the total stocks declined. Eleven of the 13 sectoral indices on BSE declined, with the banking stocks emerging the worst performers, posting losses in the range of 1-6.5%. The major losers included Axis Bank (-6.46%), Yes Bank (-6.45%), Bank of Baroda (-5.76%), ICICI Bank (-5.07%) and State Bank of India (-2.60%). The Bankex index was down 3.40%.
India VIX, a volatility index based on the CNX Nifty index option prices, jumped 8%.
