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A looming meltdown at Infrastructure Leasing and Finance Company (IL&FS), fears of a worsening current account deficit and overall negative sentiments in the market due to the rising price of crude oil roiled key benchmark indices and took the rupee down to historic low levels.
Stock market traders and investors are now looking for further cues from the Reserve Bank of India’s bi-monthly policy meet, which started on Wednesday and will conclude on Friday.
Sensex sheds 550 points
The S&P BSE Sensex fell 550 points or 1.5 per cent to close at 35,975 on Wednesday as negative sentiments weighed on the back of the rupee breaching the psychological mark of 73 against the US dollar. The broader Nifty index of the National Stock Exchange was down 150 points or 1.36 per cent to close at 10,858. Both the indices hit their lowest levels in three months. The rupee touched a low of 73.42 against the dollar, but a staged a late-hour recovery to close at 73.34.
Research analysts at leading brokerage house told BusinessLine that the negative sentiments could subside even before the RBI concludes its policy meet on Friday as the central bank liberalised norms for external commercial borrowings (ECB) on the first day of its meet. There is anticipation that the RBI will further raise key lending rates by 25 basis points to arrest the rupee’s slide.
“There is too much negativity in the markets as of now and the indices look oversold, which is why a further sharp decline from the current levels is not expected immediately,” said Rohit Srivastava, fund manager, Sharekhan-BNP Paribas. “An additional 200-point downside for the Nifty in case of any shock could be the bottom in the near term.”
The central bank said it had permitted oil marketing firms to raise overseas funds with a minimum average maturity period of 3 or 5 years under the automatic route. Further, it also waived the individual limit of $750 million or equivalent and mandatory hedging requirements as per the ECB framework for borrowings under this dispensation. Both the announcements came in the light of the rupee’s drop to a record low on Wednesday triggered by a spike in global crude oil prices.
Brent crude hit $85 and US crude rose above $75. With the rupee falling against the greenback, rising crude oil prices have a compounding effect on consumers in emerging market economics like India, analysts said.
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