The rupee plunging to a new low, the fear of the fiscal deficit ballooning due to the Food Security Bill and the rising geo-political tensions in Syria spooked foreign institutional investors, who pulled out of Indian stocks on a massive scale.
The Nifty closed at 5,287, down 189 points, and the Sensex at 17,968, down 590 points.
The rupee fell 2.9 per cent, the biggest drop since February 5, 1996, to 66.24 against the dollar. With this, the currency has lost 10.3 per cent this quarter and almost 17 per cent this year, and has become the worst performer among Asian currencies.
As the rupee plunged, gold prices rallied. In Mumbai, standard gold gained Rs 820 per 10 gm to Rs 32,585, and pure gold was up Rs 810 to Rs 32,730.
Gold futures too surged. On the MCX, October gold contracts rose to Rs 33,274/10 gm in volatile trade. In New York, gold for December delivery was up by $25 an ounce at $1,419.19. Silver moved up by Rs 1,940 to Rs 56,670 a kg.
Brent crude oil futures were up at $113.89 a barrel.
The immediate cause for panic appears to be the Food Security Bill that was passed by the Lok Sabha on Monday. This has renewed fears of a sovereign rating downgrade. According to marketmen, a few FIIs that invest for the longer term (five years plus) pressed the panic button.
“The Food Security Bill is definitely not a positive from an investor’s perspective,” said Anish Tawakley Managing Director, Barclays Securities. “More action on economic reforms is needed, not just announcements.”
According to G. Chokkalingam, Managing Director and Chief Investment Officer, Centrum Wealth Management, “The Bill will add at least another Rs 25,000 crore to the current food subsidy of about Rs 75,000 crore. There are no answers on how the Centre will finance the food security when grain prices go up due to drought, farmers shift to cash crops and increased demand from populous States.” FIIs were net sellers of equity to the extent of Rs 1,379 crore on a total volume of over Rs 5,100 crore.
Domestic institutional investors and retail investors were net buyers of equity at Rs 410 crore and Rs 47 crore, respectively.
The volatility index, India Vix, closed at 29.42, up 11.52 per cent.
Barring Infosys, Dr Reddy’s and HCL Tech all other Nifty scrips closed in the red. All broader (large- , mid- and small-cap stocks) and sectoral indices, barring IT, closed in the red. Rate-sensitive sectors, such as banking, capital goods, power, realty, metals and auto were the worst performers.
Mutual fund houses are also feeling the heat of market volatility.
According to Jimmy Patel, CEO, Quantum Mutual Fund, “It is becoming increasingly challenging to attract fresh inflows into equity schemes and increase in redemptions across schemes means more deployment in money market instruments though cash levels have not increased. Long-term investors need to stay put in their systematic investment plans.”
According to AMFI data, redemptions across all schemes went up from Rs 6,11,270 crore in July 2012 to Rs 8,27,020 crore in July 2013.
Profits to take a hit
Experts fear India Inc’s profits could take a hit in the coming quarters.
Vivek Mahajan, Head-Research, Aditya Birla Money, said “The adverse impact of exchange rates and interest rates is affecting investor confidence and will have a negative impact on corporate profitability in the next couple of quarters.”