The S&P BSE Sensex today crashed 769 points, the most in 4 years, as 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 rupee 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 on Wednesday 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.
"The fear (among foreign investors) is that recent RBI measures may bring capital control measures back in a much bigger way. The markets crashed chiefly because of this," said Gautam Sinha Roy, VP-Equities, Motilal Oswal Securities.
The stock markets were jolted by weakness in global stocks after a steep fall on Wall Street yesterday as jobless claims declined to the lowest level since 2007, renewing concerns that the US Federal Reserve would start withdrawing its stimulus from as early as next month.
The 30-share Sensex opened lower at 19,297.11 from the previous close of 19,367.59. It dropped to a low of 18,559.65 and closed at 18598.18, a 769.41 point drop, or 3.97 per cent.
This was the largest point-wise fall since July 6, 2009, when the index plunged by 869.65 points. Investors were over Rs 2 lakh crore poorer as 6 out of 10 stocks fell on the BSE.
To curb dollar outflows, the RBI on August 14 announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians.
The RBI is not considering any capital control measures, it was clarified today. Top RBI sources blamed "unwarranted rumours" about controls on FII money to the market crash. The Finance Ministry today said RBI's steps on Wednesday cannot be called capital control measures and they had more to do with reducing stress on balance sheets.
All 13 sectoral indices closed lower, with consumer durable, realty, metal, banking, capital goods leading the fall. Hero MotoCorp rose 2.4 per cent, the sole Sensex gainer.
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