Govt action fails to help market, rupee; Sensex tumbles over 500 points

The benchmark Sensex tumbled more than 500 points on Monday after the measures announced by the government over the weekend failed to stem losses in the currency and bond markets. The crash has wiped out over Rs 1 trillion of investor wealth.

Weakness in the Asian markets, amid the escalation of trade tensions between the US and China, also weighed on investor sentiment. 

The Sensex closed at 37,586, down 1.33 per cent, while the Nifty50 index shed 137.4 points, or 1.2 per cent, to close at 11,378. This was the third 1 per cent-plus fall for both the indices in the past five sessions. 

The rupee, after hitting 72.69, closed at 72.5 a dollar, down 65 paise, or 0.9 per cent, over its Friday’s close. The 10-year government security (G-sec), after hitting 8.19 per cent in opening trade, ended at 8.1 per cent, compared to the previous day’s close of 8.13 per cent.

The government on Friday announced measures to improve capital inflows and contain the widening current account deficit. Some of the steps announced include easing foreign borrowing norms for local manufacturers, relaxation of ceiling on foreign ownership of individual company bonds, and limiting non-essential imports.

Experts said the array of measures would only play out in the medium term, but would do little to stem losses in the immediate term, given the risk-off sentiment among foreign investors.

Worries over the trade war and the 10-year US Treasury crossing 3 per cent levels have triggered capital outflows from India and other emerging markets. The rise in global crude prices has also hurt India’s macro status.

“The market was expecting bigger measures that would have an immediate impact. The finance minister said the measures would bring in $8-10 billion, which is insignificant, compared to market expectation of measures that would bring at least $35-40 billion,” said Ritesh Bhansali, assistant vice-president at Mecklai Financial Services.

The Reserve Bank of India (RBI) intervened slightly in the morning trade, but the central bank was largely missing throughout the day, said dealers.

While the 10-year G-sec spiked on opening, Friday’s open-market operation (OMO) announcement led to value-buying.

“In the morning trade, the yields were reacting to the market disappointment on the measures taken with respect to the domestic currency, but soon the markets started taking comfort in RBI’s OMO announcement,” said Ramkamal Samanta, vice-president for investments at Star Union Dai-Ichi Life Insurance.

The RBI on Friday announced that it will buy bonds from the secondary market worth Rs 100 billion this week.

Banking stocks fell on concerns the RBI would have to raise rates early next month after the measures announced by the government fell short.

The overall market breadth, however, was mixed as the smaller stocks outperformed the benchmarks. While the BSE mid-cap lost 0.76 per cent, the BSE small-cap index changed very little.

The foreign portfolio investors sold shares worth Rs 1.06 billion, while domestic institutions sold shares worth Rs 1.8 billion. 

Experts said the markets will remain volatile till the rupee and bond markets stabilise and global tensions ease.

“The Indian markets could remain range-bound until the global volatility settles. The uncertainty surrounding the state and the general elections is unlikely to spook the equities any further, as markets have already factored in the risks involved. The long-term prospects of the Indian equities are intact as the economy is expected to grow at a healthy pace for the next decade,” said Sunil Singhania, founder, Abakkus Asset Manager.

Monday’s fall was led by index heavyweights such as Reliance Industries, HDFC, and HDFC Bank which accounted for a third of the Sensex declines.