Paranoid about FIIs, Sensex records steepest fall in 21 months

15:30 pm: An ugly trade day as the Sensex and the Nifty marked theirsingle day percentage fall since September 2011.

While the BSE Sensex provisionally closed down 538 points or 2.90 percent lower at 18706.70 , the Nifty closed down 166 points or 2.86 percent lower at 5655.90 today.BSE realty index was down 5.2 percent, metals index was down 4.8 percent and banking index was down 4.2 percent.

"There was nothing new in this statement but huge built up of leveraged positions is what's leading to the cascading fall across asset classes," said IIFL.

According to Pritesh Mehta, Senior Technical Analyst at IIFL, the Nifty will try and seek support at 5683. "This level was last recorded on June 13 from where the recent corrective rally started." If this level is broken, he sees the Nifty retracing back to its April lows of 5,477, a fall of 200 points.

The rupee continued to trade at its all time low of 59.95 against the US dollar.

However, India's chief economic adviser Raghuram Rajan said that the Indian government is not short of options to tackle the fall of the rupee and will take actions as necessary. Rajan also ruled out more steps to curb gold imports, saying there is no need for a "knee-jerk reaction."

And here's what Madhavan Narayanan had to say about the rupee fall!

Even global shares slumped after the US Federal Reserve's explicitly signaled that it will stop pumping money into the world economy.

Fed stimulus has helped keep the world awash in investment cash as it has struggled with a severe economic downturn. Emerging markets, many of which have been primed by easy Fed money, saw some of the biggest selling as investors rushed to the exits. The withdrawal of such money makes the future direction of financial markets uncertain.

"Over the next decade, Emerging Market assets are unlikely to deliver anything close to the kind of risk-reward that investors had become used to in the last one. And absolute returns are likely to be much lower. In that sense, to paraphrase the old expression, these are not your older brother's emerging markets," summed up Goldman Sachs in a reported dated 19 June, 2013.

Impact on gold:

According to brokerage Nirmal Bang, FOMC meeting has opened doors for further downside in Gold. Moreover, gold prices in India have cooled off due to rupee weakness prices and strict measures taken by the government to cool the imports. Gold ETF's are witnessing tremendous redemption pressure as investors are seen running away from Gold.

Investment demand of Gold is likely to remain subdued going forward.

Goldman Sachs worries about India as only $300 mn has been taken out from Indian markets since 22 May

15:18 pm: According to a Goldman Sachs report, the withdrawal of quantitative easing most likely will reduce global liquidity and inevitably will have some bumps along the way - but the equity markets in ASEAN will still rise in nominal terms because the fundamental picture is sound. However, the investment bank is concerned about India as only $300 million has come out from Indian markets after almost $16 billion came in since the start of 2013. On the other hand, almost $4 billion has been "taken out" from other ASEAN countries since 22 May.

Meanwhile, Markets are falling big time on fears of foreign outflows after Fed signalled rollback in QE3.

14:45 pm According to Emkay's head of research Dhananjay Sinha the RBI will be forced to prevent outflows through currency interventions, implying tighter domestic liquidity. Currency depreciation could otherwise worsen the CAD in the immediate term as the immediate price impact will bloat imports and also induce inflationary pressure.

The rupee has been among the top decliners in emerging currencies since May due to a current account deficit that hit a record 6.7 percent of gross domestic product in the October-December quarter. It was last trading at 59.82/81 from its 58.71/72 close on Wednesday.

According to Deutsche Bank, dollar supply in the short-term could be the most effective tool to contain rupee fall.

"Rupee's fall is in line with currencies of other emerging market economies. The Indian currency was more vulnerable to further fall among other EM currencies due to India's wide current account deficit and high fiscal gap," Sameer Goel, Head of Asia Rates & Currency Research, Deutsche Bank said in an interview with CNBC-TV18.

Markets headed for biggest single-day fall in 16 months

Meanwhile, Reuters is reporting that the BSE Sensex, which is down 2.5 percent, is heading towards its biggest single-day percentage fall since February 27, 2012.

Bonds, shares and commodities fell sharply around the world on Thursday and the dollar rose after the U.S. Federal Reserve explicitly signalled an end to easy money and data showed China's economy slowing.Shares of large-cap private banks fall as traders fear that high foreign holding in these stocks makes them more vulnerable, as a sell-off after the Federal Reserve signalled an eventual end to free money.Traders also worry an end to the U.S. monetary stimulus could lead to portfolio outflows, pushing the rupee lower and, in turn, delaying any rate cuts from the central bank.

Govt will not fix exchange rate: Montek

12:50 pm Deputy chairman Montek Singh Ahluwalia reiterated that the rupee fall is not an India-specific problem as all emerging market with high current account deficits have witnessed currency weakness.

He also said that if required the RBI will intervene but the government will not fix the exchange rate as rupee volatility has been caused due to instability in global markets. He also maintained that the government places highest importance on taming inflation as of now.

He also expressed surprise at the market's reaction to the Fed's comments.

We are all idiots to over analyze, says Samir Arora

12:27 am Even though the Sensex is down 400 points today, Samir Arora of Helios Capital thinks the market reaction to Chairman Ben Bernanke's statement is iditoc as all brokerages had expected the Fed tapering to happen by year-end or early next year, but not one report said it will never happen.

"We in the finance industry are more a bunch of overpaid, underworked people who are all very intellectually superior but have forgotten the original purpose of finance," he said in an interview to CNBC-TV18.

"According to all the reports I read today morning from Goldman Sachs, UBS, Nomura and Bank of Singapore - they all are broadly say that they thought that the tapering would happen in December quarter or in December. And maybe one of them said it will happen in February but not a single guy said that it will never happen. In fact one of them says that the policy path is exactly as he thought before the meeting except that he did not think that it would be laid down so clearly by the chairman Ben Bernanke," he added.

Not short of actions, tools to arrest rupee fall, says Raghuram Rajan

11:15 am India's chief economic advisor Raghuram Rajan today said the government has enough tools and actions to support the rupee as and when the need arises. Despite rupee touching a record low of 59.93 against the US dollar, he insisted that the Indian currency is not in a shambles and that investors should not be overly-pessimistic.

"Don't think the rupee is in shambles. Over time flows will favour India. Need to focus on the medium term," he said.

According to him, a 10 percent depreciation in the rupee leads to one percent inflation.

He also said he would like to see a more stable rupee and forex intervention decisions are taken by the RBI and they are not flat in the public domain.

He also said the RBI, Finance Ministry and Sebi are watching the global situation closely and will take the necessary steps when required.

The Finance ministry will meet an expert panel today to discuss how to improve the competitiveness of capital markets, he added.

Seeking to soothe investor concerns, Rajan said India's current account deficit (CAD) will get better in June and that there is no requirement for a knee-jerk reaction on gold imports.

"CAD is large, but we are on way to tampering it. Gold imports are coming off its peak," he said.

 Paranoid about FIIs, Sensex records steepest fall in 21 months

Raghuram Rajan. PTI

Rajan also pointed out that Quantitative Easing is easier to get into than get out of. He believes that the US Fed may actually delay tapering off of its bond buying programme as several economists believe that the US economic recovery may take more time.

Rupee fall will not hamper efforts to finance CAD: Ahluwalia

Meanwhile, Economic Times quoted Planning Commission deputy chairman Montek Singh Ahluwalia as saying that the government's ability to finance current account deficit will not be hampered by the rupee fall.

11:05: RBI likely stepped in after rupee hit 59.93 against the dollar

The Reserve Bank of India likely sold dollars via state-run banks after the rupee slid to a record low on Thursday, several dealers said, as fears of foreign outflows from India are roiling domestic bond and stock markets. The intervention was spotted when the rupee hit 59.90 to the dollar or below, these traders said. The rupee fell after the Federal Reserve signalled an end to its monetary stimulus and after China turned the screw on credit even as factory activity in the world's second largest economy hit a nine-month low. The rupee's recovery was also helped by expectations the government may take steps to arrest the slide. ( Reuters)

11:00 am Banks with high foreign holding vulnerable to sell-off, say traders

Meanwhile, banks with high foreign holding were trading down on fears that they are more vulnerable to sell-off after the Federal Reserve heralded an eventual end to free money.

"A liquidity squeeze by the Federal Reserve, if the US economy grows, will obviously reduce the flows that were coming to EMs like India, making stocks with high FII holding vulnerable for the short term," analysts told Reuters. Traders also worried that an end to the US monetary stimulus could lead to portfolio outflows, pushing the rupee lower and, in turn, delaying any rate cuts from the Reserve Bank of India.

Multiple analysts, however, said that they would look to add high-quality largecap stocks in such a fall. ( Reuters)

Chidambarm meets top civil servants to discuss rupee fall

10:59 am Finance Minister P. Chidambaram held a meeting with his top civil servants on Thursday about the fall of the rupee, which has plunged to a record low level.

The rupee has fallen to 59.9350 to the dollar, a day after the US Federal Reserve indicated a tapering of its monetary stimulus, and data showed China's factory activity weakened to a nine-month low in June.

Finance ministry officials told Reuters that the government has limited room to stem the rupee fall as the weakness was caused due to global factors.

Bond yields jumped, with the benchmark 7.16 pct 2023 bond yield rising 10 basis points to 7.36 percent from its previous close.

The BSE Sensex and the Nifty fell more than 2 percent each. (Reuters)

10:50 am Meanwhile Mohandas Pai, chairman of Manipal Global Association and former HR head at Infosys, said the rupee plunge to an all time low of 59.94 against the US dollar was the result of pathetic economic management and high inflation due to excessive govt borrowing.

Sell-off in markets exaggerated: JP Morgan

10 am: James Glassman, Senior Economist, JP Morgan Chase Bank feels that the negative reactions seen in equity markets and various asset classes on possibility of US Federal Reserve tapering its bond purchase programe was a slight exaggeration.

"I suspect this reaction is slightly exaggerated. People had heard Ben Bernanke talk about the possibility of tapering quantitative easing a month ago. We thought that he might pullback from it but he didn't. So, it might be a short-term reaction," he said in an interview to CNBC-TV18.

Ambareesh Baliga sees investors staying out of the markets

9:45 am Ambareesh Baliga, Managing Partner-Global Wealth Management, Edelweiss Financial Services expects Nifty to be range bound between 5600-5650 on downside and the upside capped at 5950.

"Rupee is clearly hurting and whatever monsoon benefits are there, they will get negated by the rupee depreciation and the inflation possibly should follow that. The current account deficit (CAD) is worsening; we are seeing foreign institutional investor (FII) flows reducing. Also irrespective of what the government says, reform process would be on the slow track," he said in an interview with CNBC-TV18, adding that he does not see investors making money and so most of them will stay out.

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Updated Date: Dec 21, 2014 02:45:32 IST