Despite heavy buying for foreign institutional investors (FII), Indian stock markets came under pressure after US Federal Reserve announced their decision to taper down its $85 billion monthly bond buying program.
The benchmark index Sensex fell by 151.24 points to 20,708.62 while the broader index Nifty declined to 6,166.65 after losing 50.50 points. Rupee also came under and slid by five paise to Rs 62.14 per dollar, the lowest level in more than two weeks.
Finance Minister P Chidambaram tried to calm the sentiments by assuring that Government could take more steps to deal with emerging situation.
“If any other policy actions are required, we will respond. At the moment all that we have announced (are having) impact,” he said after the US Feds announced to reduce their monthly stimulus by $ 10 billion to $ 75 billion per month starting from January 2014.
Experts said this caused panic among retail investors as they rushed to book profits amid concerns that FIIs would soon start to take their funds for the Indian markets, analysts said.
Chidambaram further said: “We have to wait to see what they (US) do with the interest rates. Fed says interest rates will continue to be kept low”. As regards the rupee, the Minister said “we don’t look rupee - dollar rate every hour. We look at it over a period of time. Over a period of time, rupee was stable and we expect it to remain stable”.
According to Chidambaram, the (US) cut in bond purchases is “a mild reduction and the US Federal Reserve has not announced any sequential reduction”.
The fall was restricted due to huge FII investment. As per the provisional data provided by the stock exchanges, FIIs bought shares worth Rs 2,264.11 crore on Thursday.
Market fall was lead by bank index as it fell by 2.43 per cent followed by capital goods, oil & gas and power indices as they ended the session with loss of 1.91 per cent, 1.23 per cent and 1.02 per cent respectively.
While most of the sectors came under heavy selling pressure, information technology (IT), technology and healthcare indices outperformed the markets. Tapering of stimulus would give strength to dollar which would be a plus point for these sectors as huge chunk of their dollar revenue. It index rose the most by 1.74 per cent followed by technology and healthcare indices as they gained by 1.26 per cent and 1.09 per cent respectively.
Just like stock markets, forex markets traded under pressure due to weak stock markets and fear of possible out flow of funds. Rupee fell five paise to 62.14 per dollar, the lowest level since December 3. Dollar demand from importers also weighed on the rupee, which declined for the third straight day, while some weakness in the US currency overseas and increased capital inflows restricted the fall, a forex dealer said.
“The immediate impact was the domestic currency going weak against the dollar earlier. However, rupee was seen gaining later in the day on the back of dollar selling by bankers,” said Abhishek Goenka, CEO of India Forex Advisors.
Forex experts also added that Finance Minister, P Chidambaram’s statement that the country is better prepared to deal with the impact of US stimulus withdrawal and said its consequences will not be large and more steps will be taken, if needed, helped restrict currency’s fall.