Shares continued to bleed under intense selling pressure and plunged to multi-month lows on Monday as worries mounted about deteriorating macro-economic concerns on the back of sliding rupee, which slumped to new low against the US dollar.
Hammered by relentless selling pressure, the Bombay Stock Exchange's benchmark 30-share Sensex index plunged 291 points to close at a four-month low of 18,307.52, down 1.56%. Similarly, the 50-issue NSE CNX Nifty also dipped by 93.10 points, or 1.69%, to end at 5,414.75 -- the lowest since September 2012. Investor confidence has taken a massive hit due to the recent measures announced to curb capital outflow to stem forex volatility and narrow down worsening current account deficit (CAD), sparking fears about downgrading India's sovereign credit rating.
Read: Sensex tanks 291 points as rupee tumbles
Moreover, worries over foreign investors deserting India in the backdrop of worsening macro-environment and improving US economy have further dampened sentiments. Investors are keeping their fingers crossed about which way the Markets would go. With Rs. 1 lakh crore in investor wealth lost in a single day, experts are advocating a wait-and-watch policy.
“The markets are in a free-fall, so till consolidation begins, we advocate a wait-and-watch policy,” said Pankaj Pandey, research head, ICICIDirect.com. “Don’t invest too much in stocks.”
However, if you are too keen to take the plunge, then go for defensive sectors such as pharma and information technology, advocate experts. Sun Pharma and Lupin have the potential to appreciate, added Pandey.
HT conducted a web poll asking readers if they felt more insecure due to the fall of rupee and the slide in the Indian stock market. 82% of the respondents said yes, 15% said no while remaining 3% had no opinion.
The Indian rupee hit an all-time low of 63.30 on Monday losing 148 paise as the mayhem in money and equity markets continued from last week, broadly reflecting the government's and the Reserve Bank of India's (RBI's) inability to control a free-falling domestic currency despite a string of measures.
In a latest move to stem the persistent dollar outflow the government on Monday banned duty free high-end TV imports by air travelers.
The government has decided to "disallow import of flat panel (LCD/LED/Plasma) television as part of free baggage allowance" with effect from August 26," an official notification said.
Read: Govt bans duty-free flat screen TV import by air travellers
Air travellers currently can bring a flat screen television for personal use without paying any customs duty. This benefit will be done away with from August 26.
The rupee recovered marginally but still ended the day at a record closing low of 63.13 to the dollar. The rupee is falling because foreign investors are selling the currency, preferring instead to plough into the US market, which is showing signs of resurgence.
Read more: Food prices bite, pain to worsen as weak rupee stings
"Foreign fund outflows and genuine dollar demand has made the rupee weaker," said Anubhuti Sahay, senior economist, Standard Chartered Bank. "Any significant and sustained reversal in rupee crucially depends on an improvement in India's growth story," she said.
The latest fall in currency and equity markets came days after RBI slapped new foreign exchange controls restricting the amount of dollars Indian companies and individuals can spend overseas, banned people from buying property in foreign countries and imposed fresh curbs on gold imports as part of a strategy to shore up the rupee.
Read more: Investors bail out as currency crisis deepens; Re falls 13% this year
A falling rupee has also raised the spectre of a downgrade of India's sovereign rating by international credit agencies who have unsparing in their criticism about India's precarious public finances.
Moody's on Monday reiterated its stable outlook on India's Baa3 sovereign rating, news agency Bloomberg cited analyst Atsi Sheth. Moody's said that it will continue to assess the country's foreign exchange reserves adequacy.
Read more: Clouds darken over economy as rupee hits new low, shares plunge
A sliding rupee isn't good news for India as it can fan inflation in an election year. High inflation means that the RBI will hesitate to cut interest rates, a step needed to boost the economy struggling to claw out of a decade-low growth.
India's policy makers are grappling for options to keep the current account deficit -- the difference between dollar inflows and outflows -- under control.
This deficit may also limit the RBI's ability to prop up the rupee by dipping into its foreign exchange reserves, which has fallen to $278 billion, enough to cover imports for seven months.
HT EDIT: There’s only one way out
(With PTI inputs)