Mayhem continues on D-Street: Sensex crashes 806 pts; rupee hits record low

The selloff on Thursday was led by oil marketing companies and energy major Reliance Industries, which fell 7%

Indian equities slid to their lowest levels in three months on Thursday as a falling rupee, surging global crude oil prices, and weak global cues continued to weigh on investor sentiment.

The rupee fell to an all-time low of 73.6 against the dollar, down more than 13 per cent this year, making it the worst-performing currency in Asia. The rise in inflationary pressures could compel the Reserve Bank of India (RBI) to raise interest rates on Friday, say experts.

The S&P BSE Sensex declined 2.2 per cent, or 806 points, to 35,169, the lowest close since June 28. The 50-share Nifty slumped 2.4 per cent to 10,599, below its 200-day moving average, seen as key support level for the market. This was the biggest single-day fall in eight months for the headline indices. 

"Markets have been roiled because of global factors such as the surge in crude prices, currency slide, and geopolitical conflicts," said Nirmal Jain, chairman, IIFL. "India will continue to remain vulnerable to external cues and one has to wait and watch how these factors play out over time." 

Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies, said, "Investors seem to have woken up to risks. The credit risk came to the fore a few days ago, and now it's crude oil and the rupee that have caught their attention."

The sell-off was led by energy stocks — Reliance Industries (RIL) and ONGC. Shares of oil marketing companies also tumbled after the government announced a cut of Rs 2.50 a litre in petrol and diesel prices. Besides energy stocks, the move also weighed on the overall market as investors feared fiscal slippages due to the cut in exercise duty.

Market observers said the sharp drop in bluechips such as RIL, TCS, and HDFC Bank could be due to unwinding by long-only and pension funds following the sharp currency depreciation and increasing concerns over corporate governance practices among Indian companies.

Foreign portfolio investors (FPIs) sold stocks worth Rs 27 billion on Thursday, provisional data showed. FPIs have offloaded stocks worth Rs 148 billion since August, taking their year-to-date sales to Rs 182 billion. In comparison, domestic institutions have shopped for equities worth Rs 845 billion this year.

“Investors are worried about the contagion effect from some of the liquidity-related issues, and it’s difficult to hazard a guess as to how far it will go,” said Vikas Khemani, president and CEO, Edelweiss Securities. “The biggest worry remains the surge in crude oil prices and the possibility of a US sanction on Iran.”

Crude oil prices rose to $86.3 per barrel and is up more than 50 per cent in the year to date. Brent crude prices have been hovering above $85 a barrel, the most since November 2014, on fears that the impending sanctions on Iran’s petroleum industry would lead to constricted supplies. The surge has come at a time when the dollar is gaining against most global currencies amid the US Federal Reserve embarking on monetary tightening.

According to experts, high oil prices coupled with a weak rupee could disrupt India’s trade balance, increase the risk of fiscal slippage, and pose an upside risk to inflation.

“Things will be challenging until the oil price comes down to $55-60/barrel,” said Khemani, adding that growth might slow down as well if credit supply remains restricted in certain sectors.

Asian shares retreated as well on Thursday, with gains in the dollar and the surge in global crude oil prices spooking investors. Japan’s Topix index reversed its morning gains and fell at the close while Chinese shares listed in Hong Kong slumped about 2 per cent. Indonesian and Philippine equity gauges lost more than 1.5 per cent, according to Bloomberg.

Back home, 1914, or 68 per cent of BSE stocks declined. Twenty of the 30 Sensex components and all of the 19 sectoral sub-indexes compiled by BSE slid, with the basket of energy stocks dropping the most at 6.7 per cent.

The selling in the market was seen accelerating ahead of its close following the press conference by the FM. Experts say the selling pressure could persists on Friday as all the sell orders were not executed.

“Bears are in control and participants have no option but to align their positions accordingly. We reiterate our view to prefer trading through options instead of naked futures, citing excessive volatility. Nifty has next support around 10,400,” said a note put out by Jayant Manglik, president, Religare Broking.

Volatility tremors