Black Friday in markets: Rumours rock shares, rupee

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Mumbai: Dalal Street witnessed its worst carnage in two years on Friday as equities crumpled, while the rupee hit a record new low — slipping below the psychological 62-level to the US dollar — after strong rumours that the Reserve Bank might impose restrictions on FII outflows after the recent capital control measures it announced to stem the rupee’s fall.
Investor sentiment was further rattled on speculation of an early tapering of American stimulus measures that had spooked global markets on Thursday, when the Indian markets were shut for Independence Day.
The Bombay Stock Exchange’s benchmark Sensex plunged by 769.41 points (3.97 per cent), its biggest single-day fall since July 2009, to end the day at 18,598.18, while the Nifty sank 234.45 points (4.08 per cent), to close the trading session at 5,507.85.
The only thing that held its head high as everything else collapsed was the 'fear factor' among market participants. India’s volatility index, also known as the 'fear index', which measures investor expectations about near-term volatility, jumped 26.42 per cent on the NSE, its biggest single-day percentage gain since June 17, 2009.
Black Friday in markets; Sensex down 769 points
It was a bloodbath at the stock markets as the BSE Sensex crashed by 769 points, the most in four years. Even the rupee plunged to an all-time low amid fears the government may move to a capital-control regime to curb forex volatility and narrow CAD.
The Indian currency fell below the 62 level for the first time, plummeting to 62.03 against the dollar, after the Reserve Bank of India announced additional steps to restrict foreign-exchange outflows and gold imports.
The markets were also spooked by expectations that an improving US economy would lead to a flight of foreign capital from the domestic markets.
“Nothing is going right at the moment. Overseas investors have started losing faith in the Indian economy due to policy paralysis. Now there is a growing fear among investors that India’s rating will be downgraded to junk status by global credit rating agencies,” said Arun Kejriwal, director of Kejriwal Research and Investment Service.
Speaking of the free fall in the markets, Ficci president Naina Lal Kidwai, who is also HSBC Bank’s India country head, said they had not reacted well to the RBI’s restrictions on rupee flows offshore and there were heightened fears that more restrictions were in the offing, including for FIIs.
“These fears need to be addressed - after all, India has never restricted dividend flows offshore or indeed sales of equity share proceeds even when the situation was more dire,” she said. The fall in the rupee essentially underlines weakness in economic fundamentals, she added.