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The rupee, however, recovered from a two-month low in early trades on Monday after traders covered their short positions in the currency with the Reserve Bank of India announcing restrictions on bank imports.
Equity indices fell over 2% on Monday, the biggest daily%age fall in a year, despite the fall in gold prices during the day as investors fret further decline in the yellow metal would only lead to further demand.
"Market sentiment has weakened because investors are realising that economic turnaround will take time,” said U R Bhat, managing director, Dalton Capital India. “The trade deficit data shows that CAD problem is more serious than what was earlier thought and is somewhat structural," he said
The Sensex fell 430.65 points or 2.14% to close at 19691.67. The Nifty fell 126.80 points or2.08% to end at 5,980.45. Indian indices led the downsides in Asian stocks on Monday with the S&P Asia 50 CME index falling almost 1% following the rise in dollar.
Japanese equities bucked the trend because of the continued weakening of the yen, which slid to a 4-1/2-year low against the dollar. Speculation that the US Federal Reserve has come out with a strategy to roll back its huge monetary easing policy aided the dollar.
The dollar's strength took some sheen off gold, which typically serves as an alternative to the US currency. Domestic gold fell 1.19% to Rs26,985 per 10 grams on Monday. Crude oil also weakened for the third straight day as the rise in dollar makes the commodity more expensive. Oil was down almost 1% at $95.22 a barrel in New York.
At home, foreign institutional investors (FIIs) continued their purchases, net buying shares Rs244.08 crore on Monday. Their domestic peers net sold to the tune of Rs454.82 crore, according to provisional data. FIIs, which have been buyers for 15 straight sessions, have bought Indian shares worth Rs so far in 2013.
Some brokers said it is too early to write-off Indian equities, which have gained almost 8% since mid-April, tracking gains in global markets.
“Investors are not disappointed by this fall as it was expected because the Nifty did run up about 700 points from 5400 – 6100 in a short span of time. It is not the sort of decline that should shake up the market,” said Anish Damania, Business Head – Institutional Equities, Emkay Global Financial Services.
