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The Indian stock market on Monday fell to the lowest in 15 months, while the rupee declined to a two-year low, as foreign investors continued to flee risker assets due to concern over high interest rates in the US and a slowdown in China.
The BSE Sensex fell 308.09 points, or 1.22 per cent, to 24,893.81, the lowest close since June 4, 2014, while the rupee weakened 0.54 per cent to close at 66.83 a dollar, a level earlier seen on September 4, 2013.
Most emerging market currencies weakened on Monday, as fear of further currency devaluation by China continued to spook investors, forcing them to dump riskier assets. (GAINS SINCE MODI’S SWEARING-IN ALMOST VANISH)
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“China is a big worry. If there is another round of yuan devaluation in September or October, it will spook emerging markets in a very big way. It could be the beginning of another round of currency devaluation, which means money will flow out of all emerging markets,” said Anoop Bhaskar, head (equity), UTI Mutual Fund.
China’s Shanghai Composite Index ended 2.5 per cent lower, after it resumed trading following a break last week.
Foreign institutional investors (FIIs) continued to take money out of Indian markets. On Monday, they sold shares worth Rs 827 crore, provisional data showed. In the past two weeks, FIIs have sold shares worth about Rs 17,000 crore ($2.5 billion).
In a note, Bank of America Merrill Lynch (BoA ML) said there was a “downside risk of $5-10 billion” to its forecast of $20 billion of FII inflows this year. “We continue to see volatility till the markets prices in three expected event risks: Fed action, an earnings turnaround and the Bihar polls,” it said.
“The Asian currency basket was weak against the dollar on Monday. There was intervention by RBI (Reserve Bank of India). Besides, even exporters were selling dollars. This week, the rupee might touch 67 a dollar,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.
The rupee started depreciating in August, when China announced devaluation of the yuan. To stem volatility in the rupee, the central bank has been intervening in the market. Data released on Friday showed RBI’s foreign exchange reserves fell by $3.43 billion to $351.92 billion in the week ended August 28.
In August, China’s foreign exchange reserves also fell, as the central bank of that country sold dollars to support the yuan.
Banking stocks led the fall on Monday, with Axis Bank and ICICI Bank losing three per cent each. Metal stocks Vendata and Hindalco also declined three per cent each.
With Monday’s fall, the Sensex is down about 12 per cent from its August 7 close of 28,236, pushing down valuations. And, analysts believe valuations might fall further. “Equity valuations have moderated but are still above the average. The BSE Sensex one-year forward price-to-earnings ratio has slipped to 15.8 but still remains above the long-term average of 14.5,” said BoA ML.
