)
China’s move to devalue its currency has impacted global stocks, as investors feared weaker yuan would blunt the competitiveness of companies outside China. Most benchmark indices in Asia and Europe dropped one per cent, on the back of concerns of fresh currency wars.
The benchmark BSE Sensex posted its biggest single-day fall in two weeks, as foreign investors pulled out Rs 735 crore from stocks. Falling for a fourth consecutive session, the 30-share index lost 235.63 points, or 0.84 per cent, to 27,866. The broad-based National Stock Exchange’s Nifty declined 0.74 per cent, or 63.25 points, to 8,462.35.
Global commodity and crude oil prices fell as the dollar strengthened, following the two per cent devaluation in yuan. China’s central bank cut its daily reference rate for yuan, which triggered the biggest one-day drop in the currency in two decades.
The shares of domestic metal and mining companies posted sharp declines on Tuesday.
Tata Steel fell 5.5 per cent, Hindalco dropped 4.22 per cent, and Vendanta declined three per cent.
“The China move caused panic in the financial markets. Commodity companies were impacted the most. The fall in commodity and oil prices will be positive for India in the long run,” said G Chokkalingam, founder of Equinomics.
“India’s exports, which have contracted for seven straight months until June, are likely to come under further pressure from Chinese exports. Although the People’s Bank of China has stated that this is a one-off move, history shows currency devaluations are followed by a series of such moves,” said rating agency India Ratings in a note.
The fate of key legislations, including the goods and service tax (GST) Bill, owing to the logjam in Parliament with only two days left in the monsoon session added to the negative sentiment.
“Markets are feeling completely let down by the manner of functioning of Parliament in this monsoon session. People have started questioning whether the country would be able to see any progress in such an environment. If a Bill as important as the GST is not getting passed, markets will become circumspect about growth,” said Deven Choksey, managing director, K R Choksey Securities.
State Bank of India (SBI) led the declines after its results disappointed investors. SBI shares fell 4.9 per cent, the second-most among Sensex stocks.
Other banking stocks also fell after SBI’s net interest margins faltered in the June quarter.
Punjab National Bank, Bank of Baroda, and ICICI Bank fell two per cent each.
Most sectoral indices closed with losses with the exception of information technology, which gained after the rupee fell against the dollar.
