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The Nifty and Sensex lost in excess of 1.7 per cent on Wednesday following the political crisis in Greece.
Dealers said foreign institutional investors pulled out money to fund their overseas obligations. This, in turn, pushed the rupee to close at an all-time low of 54.4950 to the dollar.
FIIs sold equity worth Rs 547 crore in the net and domestic institutions bought Rs 172 crore worth equity. Retail investors on the BSE were net buyers of Rs 55 crore worth equity.
Global investors panicked on news of fresh Greek elections in mid-June and widespread withdrawal of euro-denominated savings from Greek banks. The outflows from banks were said to have been triggered by a possible exit of the country, already in deep debt, from the EU.
All the indices on the Nifty and the Sensex closed in the red. The Nifty closed at 4858.25, down 85 points, while the Sensex lost 298 points to close at 16030.09.
The Nifty breached 4,850 and hit an intra-day low of 4837.05 while the Sensex went down below the psychological 16,000-mark to hit an intra-day low of 15,974.60.
Marketmen said institutions were unwinding positions in Europe on fear of the Greek electorate voting for anti-austerity again in June. No Greek party secured a majority nor were parties able to sew together a coalition post last week's elections.
FALLING FOREX RESERVES
“Weakness in the rupee is creating the problem,” said independent market analyst Mr Nirmal Rungta. “The equation on oil is not improving for India despite softening of crude prices. But things should improve if dollar tops out.”
“The declining foreign exchange reserves limit the RBI's ability to intervene in the local market and the burden of import bill also reduces the impact of the intervention,” said Mr Abhishek Goenka, CEO, India Forex Advisors.
“Even the recent steps taken by RBI related to the exchange earner account and bank over night limits did not provide much support to the rupee,” he added. Volatility was up 6.41 per cent and the IndiaVix closed at 23.71.
The dollar appreciated against all global currencies on Wednesday due to global risk aversion. With investors seeking safety, yield on 10-year US treasuries strengthened and the benchmark was quoting at 1.8 per cent at the time of going to print. The rupee depreciation was also due to widening trade deficit, and the possibility of the government overshooting fiscal deficit projections.
Though the RBI intervened in the market by selling dollars at around 54.30 levels (the previous life time closing low, was in December 2011), demand for dollars far outstripped supplies.
“There was dollar demand for loan repayments, from oil companies, and FIIs who sold in the equity markets. Exporters were holding out, expecting the rupee to dip to 55-56 levels,” said a dealer with a foreign bank.
The rupee may strengthen from early next week when exporters begin to convert 50 per cent of their dollar holdings in EEFC (Exchange Earners' Foreign Currency) accounts into rupees, say experts. The deadline for the conversion is May 23.
> raghavendrarao.k@thehindu.co.in
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