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Indian shares fell on Wednesday, tracking the weakness in global markets, which were dragged down by the worries about renewed dollar strength, higher oil prices and political turmoil in Portugal that threatens to revive the European debt crisis. Indications of slowdown in China’s economy also weighed on sentiment.
The BSE Sensex fell by 286 points or 1.5 per cent, to end the day at 19,177. The NSE Nifty closed at 5,770, down 86 points or 1.5 per cent.
The rupee weakened against the dollar ahead of the US non-farm jobs data, which is due on Friday. The reading will give investors better insights into the state of the world’s biggest economy. Investors fear if the data is better-than-expected, the US Fed would roll back its massive bond buying programme, known as quantitative easing or stimulus, this year itself.
The rupee ended the day at Rs 60.21 against the dollar. The weaker rupee also heightened worries that the Reserve Bank of India (RBI) may continue with its tight monetary policy to ward off inflationary pressures.
“Considering the fall in the rupee and the hike in fuel prices, RBI may not cut rates at this point. The strengthening US dollar and policy inaction locally is further adding to the pressure on the rupee,” said P V K Mohan, head (equity) at Principal Mutual Fund.
Brent crude was up 1.1 per cent at $105.18/bbl due to political tensions in West Asia. Banking stocks, which led the fall, declined by as much as 8 per cent during the day. Stocks of state-owned banks fared worse than the private banks. Among the Bankex stocks, Bank of Baroda fell the most at 7.8 per cent, followed by the Union Bank at 7.4 per cent, and Bank of India at 6.2 per cent.
Apart from the improbability of a rate-cut, banking stocks were also impacted by RBI’s regulation for provisioning against un-hedged forex exposure due to the recent decline in the currency. “The fall in the markets was led by the banking stocks, which were weak through the day. These stocks were reacting to the central bank’s ruling, which has mandated banks to make provisions for un-hedged forex exposure,” said Tirthankar Patnaik, director, India strategist and chief economist at Religare Capital Markets.
Foreign investors continued to sell their holdings with FIIs being net sellers at Rs 705 crore on Wednesday. Domestic institutions were net buyers for the day at Rs 252 crore.
“FIIs are not buying globally as ETFs (exchange traded funds) are also facing redemption pressures. Incremental foreign flows are coming into the Indian markets but for most part, FIIs are selling,” said Ramanathan K, chief investment officer at ING Investment Management India.
Asian markets were also trading in the red on Wednesday, as the Chinese manufacturing and services purchasing managers’ index (PMI) data was weak, signalling a slowdown in the country’s economy. The weakness percolated to all Asian markets. The Hong Kong Hang Seng Index was down 2.5 per cent on Wednesday. In Europe, Portuguese stocks tumbled after the Prime Minister’s refusal to accept the resignation of the country's foreign minister raised concerns over a full-blown political crisis, which could derail its attempts to tighten its finances.
