Investors pulled out money out of risky assets on fears of Italy exiting the eurozone. The sentiment was hurt as prospects of trade talks between the US and China and a summit with North Korea faded. Most emerging market currencies tumbled after a slide in the Turkish lira sparked fears of contagion. The dollar index, a gauge for the greenback’s performance against major global currencies, breached 94 for the first time in 2018. The euro and the British pound fell to their 2018 lows of 1.17 and 1.33, respectively, against the dollar.
The rupee dropped 0.6 per cent to a 17-month low of 68.42 against the dollar. The rupee is inching towards its record low of 68.85, touched on August 28, 2013. The rupee is down 8 per cent from its 2018 high of 63.37, making it the worst-performing currency in the region. The benchmark indices, Sensex and Nifty, fell nearly 1 per cent each, with metal and energy stocks witnessing a huge sell-off.
“Emerging markets across the world are seeing stress. The risk-off could get severe. Domestically, macro triggers, such as a rising trade and current account deficit, are playing out,” said Tirthankar Patnaik, India strategist, Mizuho Bank. “A strong dollar is stoking fears in all emerging markets,” said Ramesh Damani, member, BSE.
The Sensex declined 306 points to a one-month low of 34,344.9. The Nifty lost 106 points to close at 10,430, erasing all of its 2018 gains. Tata Steel’s shares fell 6.6 per cent and Oil and Natural Gas Corporation declined 4.8 per cent. Index heavyweights HDFC Bank and Reliance Industries fell more than 1 per cent each and dragged the Sensex lower by 100 points.
Indian markets have been under pressure amid rising crude oil prices and weakening of the rupee.
"This should be a passing storm. This is the higher end for oil and the dollar. The markets should rebound," added Damani.
Foreign investors sold shares worth Rs 3.11 billion on Wednesday, while domestic investors bought to the tune of Rs 7.9 billion. On the National Stock Exchange, 697 stocks ended with gains, while 1,112 ended with losses. Foreign investors have pulled out nearly $1 billion from stock markets this month.
Rupee on weak footing
Currency consultants have started to give a call that rupee could touch 70 to a dollar in the coming months. Abishek Goenka, managing director of IFA Global, said the rupee could extend fall till the 73-mark before March 2019, if the 10-year US Treasury yield crosses 3.5 per cent. Aman Mahna, senior trader at First Rand Bank, says emerging markets currencies will come under pressure on threats of a split in the eurozone. "Global yields are spiking and political uncertainties in the euro area do not bode well for emerging market currencies. On Wednesday, there was some dollar outflow, perhaps because of oil and that led to the rupee weakening," said Mahna. Reetesh Bhansali, assistant vice-president of Mecklai Financial, said the most important factor for the rupee was crude oil prices, which had touched $80 a barrel.
Experts, however, said India was on a much better footing compared to most emerging markets.