The Indian Rupee briefly touched a six-month low and the stock market collapsed on a routine North Korean rant that was largely ignored by Europe and America and marginally impacted sentiments across other parts of the globe, except in Hong Kong. It was obvious that jittery over the weakening fundamentals of the Indian economy, market players used North Korea’s threat to test a Hydrogen bomb in the Pacific Ocean as an excuse to offload their positions.
As flagship Sensex tanked over 447 points to end at the 31,922.44 mark and the Nifty ended below the 10,000 mark by sliding almost 158 (1.56 per cent) points to close at 9,964.40, investors’ wealth saw an erosion of Rs 2.68 lakh crore on Friday. It is the biggest slump in the stock markets since November 15, 2016.
In comparison, England’s FTSE index was up 45 points (0.63 per cent), France’s CAS was higher by 16 points (.30 per cent), and Germany’s DAX also ended in the green. The USA’s Dow Jones index opened in green and traded marginally lower throughout the day.
The North Korean threat also went largely unnoticed by Asia where Singapore’s Strait Times index was in the green, Shanghai’s composite index ended marginally lower by 0.16 per cent and Japan’s Nikkei lost quarter of a per cent. Only Hong Kong markets saw a sell-off, and that was mainly because S&P lowered the country’s credit rating from AAA+ to AA+ following China’s downgrade.
The rupee saw a free fall in the morning, touching a six-month-low of Rs 65.15, though it clawed back its lost territory to end marginally higher at Rs 64.79 per dollar.
The rupee nosedived on hardening speculation of a widening fiscal deficit after the Government indicated a package of stimulus measures to boost exports and revive falling domestic growth.
Aggressive hedging strategy adopted by currency traders and speculators, along with strong dollar demand from importers also added pressure on the rupee front, amid fears that an impending Fed rate hike could accelerate fund outflows. However, suspected intervention by Central bank officials during the day believed to have given the currency a lift in Asia.
The decline of the GDP to 5.7 per cent has stripped India of the tag of the fastest-growing economy and the international investment community is no more gung ho about the country being a dream destination for parking their money.
During the last seven weeks, FIIs have gone for relentless selling in the Indian market. It is estimated that FIIs have sold nearly $2 billion worth of shares in cash and futures during this period. If the Indian market has escaped a bigger fall, it is because the domestic liquidity is providing it a prop.
While India’s GDP growth has been falling for the last six quarters, private investments are low and bankers often complain about there being no fresh demand for greenfield projects. The system credit growth is struggling to revive and continues to be in mid single digits.
Deteriorating asset quality and the pressure on capital stemming from the high non-performing assets (NPAs), coupled with migration to newer capital guidelines, is the biggest stumbling block for the banking system.
Rattled by the key indicators of the economy turning negative, Finance Minister Arun Jaitley once again said that the Government was planning a series of steps to stem the rot.
Addressing the Indian Banks Association’s Annual General Meeting in Mumbai, Jaitley said reviving private investments and strengthening the banking sector were the biggest challenges in this process.
“The reality is that there are two major challenges. One with regard to encouraging private sector investment and second with regard to improving the capacity of our banking system to support growth,” Jaitley said.
Jaitley said the Government certainly stood as one with the banking system and would take whatever steps were required to be taken to find a resolution to this problem of stressed assets. “We will expeditiously work with India’s banking system in order to strengthen it,” he said.
“The Centre is working towards strengthening its ability to support the banks through greater resource mobilization,” Jaitley said.
His comments came amidst increased speculation that the Government was mulling increasing capital infusion in the 21 public sector banks (PSBs) which control over 70 per cent of the system.
Banks are facing mounting NPAs or bad loans to the tune of Rs 8 lakh crore of which PSBs alone account for Rs 6 lakh crore. The bank NPAs are skirting the double digit mark.
Meanwhile, the CII has called for Increase in public spending, relaxation of fiscal deficit target and interest rate cut by 100 basis points to stimulate the slowing economy.
The Confederation of Indian Industry in a statement has also suggested interventions for the depreciating rupee that would increase export-related jobs.
“CII looks forward to quick growth in the GDP which we expect by year-end as industry gets over the teething issues related to GST,” said Shobana Kamineni, President of the industry chamber.