June 20, 2013 / 18:25 IST
Moneycontrol Bureau
It was mayhem in the stock and bond markets Thursday, with India joining the meltdown in global markets. The Sensex crashed over 500 points and the rupee is now within a hair’s breadth of 60 to the dollar.
The trigger for the sell-off was the US Federal Reserve's explicit timeline for a possible winding down of the monetary stimulus in that country. Investors are worried that this will gradually choke the rush of foreign capital flows into emerging markets, including India.
The 30-share Sensex closed at a two-month low of 18,719.2, down 526.41 points over its previous close. The Nifty closed at 5655.90, down 166 points over the previous close.
FIIs have already pulled out Rs 27,000 crore from Indian bonds since May 22, adding to the pressure on the rupee. They have been quite restrained in the equity market, net selling around Rs 2300 crore in June so far. But fears are that that a sliding rupee could force their hand at some stage.
Metals, banking and realty were among the worst hit sectors, even as a section of the market felt that investors were over reacting to the Fed chairman Ben Bernanke’s statement that the quantitative easing (QE) would end by mid of 2014.
"The truth is most of us have been expecting that the Federal Reserve at the end of the year would start to wind down; slow down gradually the asset purchases," said James Glassman, Senior Economist, JP Morgan Chase Bank in an interview to CNBC-TV18 today.
A similar sentiment was echoed by Helios Capital’s Samir Arora, who pointed out that all reports broadly expected the Fed tapering to happen by year-end or early next year. "For it to be brought forward to September just means that you’ve brought something (early) which was more or less done," he said in an interview to CNBC-TV18.
The Finance Ministry got into overdrive, trying to calm the market, without much success. Chief Economic Advisor Raghuram Rajan told the media that the government had the weapons in its arsenal to tackle the slide, but would not be rushed into a decision because of the market reaction.
"We have a range of instruments. We can call on them as and when needed. We will not flag them," he said at a press conference.
"The ministry of finance, RBI and Sebi are watching developments closely and take action appropriate. We should not let ourselves to be led by the market into directions we do not want to go," he said.
Jindal Steel, Indiabulls Real Estate, Dena Bank, Glaxosmithkline Consumer and
Union Bank were among the big losers, shedding between 7-10 percent.
Stocks that managed to weather the selling fury included Bajaj Holdings
Future Retail, Shriram City Union, Wipro and Glaxosmithkline Pharma, which gained between 1-2 percent.
