Sensex cracks as investors fret over rupee's decline

Tanks 455.10 points in its steepest decline in 15 months

Indian shares today fell sharply, tracking weak global markets, as investors were worried about the rupee's decline against the dollar, amid concerns the US Federal Reserve might trim its monetary stimulus soon. The Reserve Bank of India (RBI) Governor D Subbarao's remark that retail inflation was still high also spooked investors, who dumped rate-sensitive stocks, such as those of banks and realty firms, on fears that the central bank might not cut rates aggressively next month.

Market participants paid little attention to the March-quarter gross domestic product (GDP) reading, which came largely in line with expectations. India's economy grew 4.8 per cent in the fourth quarter, compared with 4.7 per cent in the previous quarter. But, analysts said the details in the GDP data pointed to a protracted weakness in economic growth. Brokers said some portfolio shuffling by foreign institutions ahead of changes on MSCI India index also contributed to the weakness.

BSE's Sensex fell 455.10 points or 2.25 per cent to close at 19,760.30. Today's fall was the highest in terms of points since February 2012. As a result, investors suffered a notional loss of Rs 115,855 crore today. The total market value of firms listed on BSE came down by 1.69 per cent from yesterday's level to Rs 67,28,196 crore.

NSE's Nifty today declined 138.10 points or 2.26 per cent to end the day at 5,985.95. A surge in the NSE Volatility Index, to 16.99, reflected the nervousness among investors. (MARKETS SPOOKED)

"Markets are worried about the falling rupee and are not expecting the weakness to abate soon," said Tirthankar Patnaik, director and strategist, Religare Capital Markets. "We remain cautious."

The rupee fell further from yesterday's close of Rs 56.38 a dollar, due to month-end dollar demand and foreign institutional outflows. The currency ended the day at Rs 56.51, its lowest level in a year.

Equity derivative traders unwound a portion of their bullish bets in Nifty futures that they had rolled over to the June series when the May contracts expired yesterday. Open interest - the outstanding positions at the end of the day - in Nifty futures today declined 13 per cent from the previous close.

Bank shares were among the top losers, with BSE's bank index declining 2.5 per cent. While hopes of aggressive monetary policy easing were dashed after Subbarao's comments yesterday, RBI's move to tighten loan recast norms also affected sentiments.

"Subbarao sounded very bearish yesterday and in doing so he talked down every asset class," said Nick Paulson Ellis, country head, Espirito Santo Securities India. "The magnitude of the rupee's fall over May has also spooked foreign investors," he said. The currency is down 4.13 per cent since the start of 2013-14.

Foreign institutional investors net-sold shares worth Rs 504 crore today, according to provisional data. These investors have net-bought Rs 21,175-crore shares so far in May and Rs 81,714-crore since January 1.

A weaker rupee against the dollar erodes the value of foreign institutions' Indian shareholdings, which are valued in the local currency. Also, it impacts the government's ability to manage its fiscal and current account deficits, which have been key concerns for investors.

Global commodities today declined on stronger dollar and economic data from the Euro zone, which exerted downside pressure on prices. Spot gold declined marginally, 0.5 per cent to $1407.75 an oz. In India, depreciation in the Rupee supported an upside in the prices.

Taking cues from a fall in spot gold prices and a mixed performance of the base metal pack, spot silver prices fell 0.75 per cent today.

Copper, the leader of the base metals complex, declined 0.39 per cent due to weak global stock markets. Crude oil prices fell 0.5 per cent on the back of expectations that OPEC would keep its supply target unchanged. Further, weak global markets and a rise in Euro zone unemployment led to forecast for fall in demand for the fuel.