Caught between the fire in the East and the frying pan in the West, the BSE Sensex crashed to its 35-month low, falling 1,071 points or 11 per cent to close at 8,701. This is the second-largest fall in its value in absolute terms or third-largest in percentage terms.
<b1>The fall was led by massive selling by foreign institutional investors — they sold equities worth Rs 14,487 crore in October alone and almost Rs 100,000 crore since January. The exit weakened the rupee which breached the 50-to-the-dollar mark on Friday.
But it wasn’t just investors in the panic room. “This is a serious situation and we require to address it,” said Commerce Minister Kamal Nath.
“FIIs are not even asking for prices and are exiting at any price,” said Aseem Dhru, CEO, HDFC Securities. “There is heavy delivery based selling.”
The last time the Sensex had hit this level, in November 2005, the global economy including India’s was flush with liquidity. Then, Reserve Bank of India (RBI) had imposed the first repo rate (rate at which RBI lends to commercial banks) hike, after four years.
In 2008, India has come a full circle, as RBI has cut the percentage of money banks need to keep with RBI as cash by 250 basis points (100 basis points makes 1 percentage point), from 9 per cent to 6.5 per cent and the repo rate from 9 per cent to 8 per cent.
Amid fears of recession, the fall resonated from Japan to the UK. While Asian markets fell 3-10 per cent, European markets were down 4-9 per cent. Britain reported a contraction in GDP — 0.5 per cent — for the first time in 16 years on Friday.