Sensex slumps 770 points on capital control, U.S. stimulus fears

MUMBAI Fri Aug 16, 2013 10:22pm IST

1 of 3. The Bombay Stock Exchange (BSE) building is pictured next to a traffic signal in Mumbai August 16, 2013.

Credit: Reuters/Danish Siddiqui

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MUMBAI (Reuters) - The Nifty slumped 4 percent on Friday, marking its biggest daily drop in almost two years, as blue chips including HDFC Bank were hit across the board on fears U.S. stimulus tapering would trigger foreign selling and as the rupee hit a record low.

The Reserve Bank of India's measures late on Wednesday to restrict how much its citizens and companies can invest abroad also raised fears of outright capital controls that would further undermine the confidence of foreign investors, hitting the rupee.

The volatility index which measures the cost of protection via options and is seen by some investors as a "fear" gauge gained 26.4 percent, marking its biggest single day percentage gain since June 17, 2009.

The outlook remains weak as Indian shares marked their fourth consecutive weekly fall, totalling a decline of 7.7 percent, as the rupee has tumbled despite various measures undertaken to prop up the currency.

"FIIs (foreign institutional investors) may pull out further on continued concerns over Fed's potential tapering and as the rupee continues to make record lows," said Sachin Shah, a fund manager at Emkay Investment Managers Ltd.

Although valuation have started looking attractive, Shah added.

The Sensex plunged 3.97 percent, or 769.41 points, to end at 18,598.18, also falling 1 percent for the week, marking its fourth consecutive weekly fall.

The Nifty dived 4.08 percent, or 234.45 points, to end at 5,507.85, marking its biggest single daily fall since September 22, 2011.

The index closed below the psychologically important 5,600 level after falling 1.03 percent for the week.

Blue chips fell across the board. HDFC Bank (HDBK.NS) slipped 5.4 percent, while Reliance Industries (RELI.NS) tumbled 4.4 percent.

Axis Bank (AXBK.NS) slumped 8.8 percent after MSCI said it would exclude the bank from its standard and large-cap indexes.

Axis shares also come under pressure after the Reserve Bank of India said on Wednesday overseas investors will not be allowed to purchase additional shares given the foreign shareholding limit has been breached.

Among other stocks consumer goods shares were hit: ITC (ITC.NS) fell 4.3 percent while Hindustan Unilever (HLL.NS) ended 2.9 percent down.

Tata Motors (TAMO.NS) fell 1.6 percent as Wednesday's 9.7 percent gains on unit Jaguar Land Rover July sales were seen as overdone.

Titan Industries (TITN.NS) shares slumped 12.1 percent after the RBI banned imports of gold coins and medallions and required domestic buyers to pay cash for the yellow metal, among other measures.

Analysts said this would increase interest costs and hurt margins for players like Titan.

However among stocks that gained, Financial Technologies (India) (FITE.NS) ended up 2.6 percent after unit National Spot Exchange Ltd on Wednesday said it would settle 55.37 billion rupees worth of outstanding forward contracts over seven months, after earlier suspending trading in these securities.

(Editing by Anand Basu)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (3)
jvaishnav47 wrote:
Govt has never concentrated on attracting foreign fund on long term basis
,govt was informed short term fund like in capital market shall give bitter taste when outflow starts,similarly when Banks have raised interest rate on NRE deposits, aggressive efforts could have fetched better result.Govt do not listen to public representations,even though in national interest
Investors whether domestic or foreign have lost confidence , increasing corruptions cases, scams have eroded India’s credibility, political uncertainty has also dampen investors interest.
Govt had freely allowed outward remittance , now cap is imposed, however to restrict some one to invest abroad is punitive action
RBI also do not pay interest to Banks on their cash reserve balances , govt/RBI have even ignored safety of billions of Bank depositors hence deposit insurance limit has not been raised since 1993

Aug 17, 2013 1:00pm IST  --  Report as abuse
jvaishnav47 wrote:

Alarming amount of bad loans, restructured loans, slow credit off take,

&liquidity crunch do not allow Banks to reduce interest on deposits,

& Advances ,Banks are facing pressure on their net interest margin
Recent RBI decisions have made cost of fund costlier, which shall
further deteriorate Bank’s net interest margin,liquidity crisis shall deepen it shall affect growth, employment generation.

Main reason of increasing bad loans being poor assessment, absence of
verification of end use of fund, not asking for audit report of borrower’s audit firm,absence of getting presence in firm’s management,poor recovery system undue delay in filing case /getting decree of recovery.

It is unfortunate hat RBI is not paying interest to Banks on their cash reserve balances ,similarly even safety of billions of Bank depositors is being ignored hence deposit insurance limit has not been revised since 1993,

Govt /RBI is failed in taking appropriate steps to control bad loans, frauds ,particularly in Public sector Banks, various audits have not given expected result

RBI is silent , Public sector Banks yet could not convince their customers to go for net banking, ecs, neft, atm facility etc hence cost of fund is high. Banks give incentives to their staff even on walk in business

Aug 17, 2013 1:03pm IST  --  Report as abuse
jvaishnav47 wrote:
What is regretted , how govt can ignore investor’s choice, & allow
to invest in foreign countries with certain limit.Business community shall invest where there is growth, better business prospect, & have confidence.Govt/RBI action is deterrent.
Similarly RBI has made cost of fund costlier, which shall further deteriorate net interest margin of Banks,Banks may soon raise lending rates to survive since RBI even do not pay interest to Banks on heir cash reserve balances.

Aug 17, 2013 1:13pm IST  --  Report as abuse
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