Bourses stage biggest fall in almost two years on weak rupee, FII outflow concern

Friday’s session turned out to be a horrendous session for the Indian markets which disintegrated like a ‘house of cards’ and went on to breach various key technical levels in the around four percent freefall. The frontline indices which appeared to be on a southbound journey, desperately kept searching for a bottom through the session, but to no avail as the journey only halted with the session’s close. Earlier, benchmark got a gap down opening, in tandem with the somber sentiments prevailing in global markets. Thereafter, the frontline indices lost the plot and kept tumbling down the hill with Nifty losing over 200 points for the first time since September 22, 2011.

Sentiments further dampened as banking shares clobbered out of the shape after the Reserve Bank of India (RBI) on August 14, 2013 announced additional measures to support the Indian rupee by stemming foreign exchange outflows by Indian residents. Overseas direct investment (ODI) by Indian companies have been cut three-fourths, 100% from 400%, making it more difficult for local corporates to buy overseas assets. Meanwhile, RBI reduced the limit for remittances made by Resident Individuals, under the Liberalised Remittance Scheme (LRS Scheme), to $75,000 from $200,000 per financial year. Event though, Indian rupee slipped to all time low in early trade despite a slew of measures announced by the central bank at boosting inflows and curbing outflows.

Weak global cues too played the spoilsport for Indian markets as investors remained concerned that the roll-back of US stimulus could spark selling pressure by the overseas investors in the equity space. Asian markets too shut shop mostly in the red with Japanese Nikkei shedding three fourth of a percent as US stock futures traded near five-week low after Wall Street shares had their biggest one-day drop since late June. European counterparts too traded mostly in the red in early deals.

Back home, selling was both brutal and wide based as none of sectoral indices on BSE were spared. Sentiments further got dented with shares of jewellery makers tumbling after the Reserve Bank of India banned imports of gold coins and medallions. Titan Industries, PC Jeweller, Rajesh Exports, Shree Ganesh Jewellery House and Tribhovandas Bhimji Zaveri (TBZ) were down 2-11% in opening deals.

The NSE’s 50-share broadly followed index Nifty declined by over two hundred and thirty points to end below the psychological 5,550 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex crumbled around seven hundred and fifty points to declined below the psychological 18,600 mark.

Broader markets too clobbered out of shape and snapped the session with a huge cut of over two percent. The market breadth remained in favour of decliners, as there were 728 shares on the gaining side against 1,584 shares on the losing side, while 138 shares remained unchanged.

Finally, the BSE Sensex shaved off 769.41 points or 3.97% to settle at 18,598.18, while the CNX Nifty plunged by 234.45 points or 4.08% to end at 5,507.85.

The BSE Sensex touched a high and a low of 19310.95 and 18559.65, respectively. The BSE Mid cap index was down by 2.71% and Small cap index was down by 2.15%.

The only gainer on the Sensex was, Hero MotoCorp, up by 2.40%. On the flip side,  BHEL down by 10.70%, Sterlite Industries down by 6.65%, GAIL India was down by 6.49%, ONGC was down by 6.06% and Tata Power was down by 5.91% were the top losers on the index. 

There was no gainer on the BSE sectoral space, while Consumer Durables down by 8.38%, Realty down by 6.07%, Metal down by 5.56%, Bankex down 5.55% and Capital Goods down by 4.98% were the top losers on the sectoral space.

Meanwhile, the World Gold Council (WCG) has revised its forecast for India's gold imports to 1000 tonnes from 865-965 tonnes projected earlier on the back of spurt in demand during the April-June quarter of 2013. Despite a series of hikes in import duty and other restrictions imposed by the government, the reported quarter witnessed record gold imports of 310 tonnes, highest in the last ten years.    

According to the WCG report, the demand was mainly due to falling prices in gold. Gold prices came off by around 13%, or by Rs 3,835 per 10 gram, in the reported quarter, which increased domestic jewellery demand around 51% and investment demand by 116% in the same period. India and China together accounted for almost 60% of the world’s gold demand during the quarter. Strong demand of gold has become a worrying factor for Indian policymakers as the country is facing a high current account deficit (CAD), which widened to a record high of 4.8% in the previous fiscal year.

Further, the report said that the increase in gold import duty in June and the change in payment for gold imports only had a limited impact on end-user demand however, the situation could improve, going forward. The WCG expects that the demand for jewellery is likely to remain high in the near term on account of wedding season and a good monsoon, while, the demand for investments will come down as most jewellers have strictly suspended the sale of gold coins and bars.

Meanwhile, to curb the gold import, the government has taken several steps, including raising import duty. Recently, the government has hiked imports duty on gold for a third time in eight months to 10% from the earlier 8%. Further, the Reserve Bank of India (RBI) too had put restrictions on banks on gold imports, which has led to forex outflow.

The CNX Nifty touched a high and low of 5,716.60 and 5,496.05 respectively. 

The top gainers on the Nifty were Hero MotoCorp up 2.17%, PowerGrid up by 1.13% and HCL Tech up by 0.20%. On the flip side, the top losers of the index were, JP Associates down by 11.09%, BHEL down by 10.92%, Axis Bank down by 9.36%, Bank of Baroda down by 8.63% and Reliance Infrastructure down by 8.52%.

The European markets were trading mixed, France’s CAC 40 up by 0.04%, Germany’s DAX down by 0.26% and the United Kingdom’s FTSE 100 down by 0.09%.

All the Asian markets barring Taiwan Weighted, concluded Friday’s trade in red amid worries that Federal Reserve would cut its stimulus, with mainland Chinese stocks finishing lower after witnessing a dramatic surge earlier in the day. Japan's Nikkei share average fell for a second day led by financials on speculation that the Federal Reserve may begin to trim its stimulus soon. Hong Kong shares, after tracking Friday’s roller-coaster ride for mainland Chinese markets, ended the day on a tepid note, but they still had their best week of the year. The Shanghai Composite ended the week 0.8% higher despite today’s losses, while the Hang Seng Index was among the region’s best weekly performers with a 3.3% gain. Also posting weekly gains, South Korea’s Kospi added 2.1%, and the Nikkei Stock Average edged 0.3% higher.

Shanghai’s inflation growth eased in July while industrial production expanded faster and investment remained flat, indicating strengthening economic performance in the city. The Consumer Price Index, the main gauge of inflation, rose 2% from a year earlier last month, compared with the increase of 2.5% in June, the Shanghai Statistics Bureau stated. It bucked the national trend last month as China’s inflation growth was unchanged at 2.7%. Meanwhile, the city’s industrial production grew 2.5% year on year to 261.1 billion yuan ($42.1 billion) in July, accelerating from the pace of 0.9% a month earlier.

Japanese government spokesman Yoshihide Suga and Finance Minister Taro Aso both downplayed this week’s report that the government is considering a corporate tax cut. Indonesia’s Finance Minister Chatib Basri stated that Indonesia’s budget for next year will put heavy emphasis on promoting domestic demand as the driver of growth as the country’s exports will remain weak. Basri conceded that this year’s 6.3% economic growth target would be hard to reach.