Sensex cracks as trade deficit jumps

Gold falls, rupee recovers from two-month low in early trade, crude oil weakens

Global financial markets weakened on Monday as a stronger dollar sparked a sell-off in Asian equities, gold and crude oil. Indian stocks fell after data showed the country’s trade deficit had widened in April, led by higher gold imports, raising worries about the Centre’s ability to control the current account deficit (CAD).

The rupee, however, recovered from the two-month-low figures it hit in early trade on Monday after traders covered their short positions in the currency, with the Reserve Bank of India announcing restrictions on gold imports.

Equity indices fell over two per cent on Monday, the biggest daily percentage fall in a year, even as gold prices slid during the day, as investors feared a further decline in the yellow metal would only push demand.

“Market sentiment has weakened because investors are realising that economic turnaround will take time,” said Dalton Capital India Managing Director U R Bhat. “The trade deficit data show the CAD problem is more serious than earlier thought and somewhat structural.” (ALL NERVOUS)

The Sensex fell 430.65 points, or 2.14 per cent, to close at 19,691.67. The Nifty fell 126.80 points, or 2.08 per cent, to 5,980.45. Indian indices led the downsides in Asian stocks on Monday, with the S&P Asia 50 CME index falling almost one per cent following a rise in the dollar. Japanese equities bucked the trend because of the continued weakening of the yen, which slid to a four-and-a-half-year low against the dollar. The speculation that the US Federal Reserve had come out with a strategy to roll back its huge monetary easing policy aided the dollar’s surge.

The dollar’s strength took some sheen off gold, which typically serves as an alternative to the greenback. Domestic gold fell 1.19 per cent to Rs 26,985 per 10 g on Monday. Crude oil also weakened for a third straight day, as the rise in dollar made the commodity more expensive. Brent crude was down almost one per cent at $102.61 a barrel.

In India, foreign institutional investors (FIIs) continued their purchases, net-buying shares worth Rs 244.08 crore on Monday. Their domestic peers net-sold to the tune of Rs 454.82 crore, according to provisional data. FIIs, which have been buyers for 15 straight sessions, have bought Indian shares worth Rs 68,561 crore ($12.70 billion) so far in 2013 (until last week).

ITC was the major loser of the day, dropping 5.31 per cent, followed by TCS (2.42 per cent). All sectoral indices, led by FMCG and capital goods, closed in the negative territory, with losses of up to 3.17 per cent.

Some brokers said it was too early to write off Indian equities, which had gained almost eight per cent since mid-April, tracking gains in global markets.

“Investors are not disappointed with this fall; it was expected. The Nifty had run up 700 points from 5,400 to 6,100 in short time. It is not the sort of fall that should shake up the market,” said Anish Damania, business head (institutional equities), Emkay Global Financial Services.