Mumbai: Markets plunged sharply for the second straight day as persistent weakness in the rupee against dollar, rising bond yields and concerns regarding an escalation in trade wars triggered across the board selling on Tuesday. The market correction over the last two days has wiped out Rs 4.2 lakh crores of investors wealth.
The Sensex plunged 509.04 points or 1.34 per cent to end the day at 37,413.13 while the Nifty closed at 11,287.50, down 150.60 points or 1.32 per cent. Meanwhile, the rupee closed at a new low of 72.70 a dollar as foreign portfolio investors (FPI) offloaded shares worth Rs 1,454.36 crores.
“This strength in the US dollar has led to the emergence of funding pressures and an exogenous tightening of financial conditions in emerging markets (EM). Financial conditions are tightening almost across the board in EMs but more sharply in those more exposed to external funding pressures,” noted Morgan Stanley in a note.
According to it, the actions of emerging market central banks have largely been counter cyclical with the notable exceptions of Argentina and Turkey. “We expect US GDP and productivity growth to moderate in our base case, but if US capex and productivity growth and or oil production remain strong, the Federal Reserve can and will tighten further, and the US dollar could stay stronger for longer. In this scenario, EM central banks will eventually have to tighten more than underlying growth and inflation fundamentals warrant,” Morgan Stanley added.
On Tuesday, the selling was broad based as 1,872 stocks traded on the BSE closed in the red as compared to 845 stocks that advanced.
“The persistent weakness in rupee is now starting to show its impact on all asset classes including the equities. The “sentiment risk” is now the major challenge for stock markets. At this time, investors need to be careful and try to get into export-oriented sectors and zero-debt companies as even Indian bond yields have sharply risen to 4-year highs,” said Jagannadham Thunuguntla, senfior VP at Centrum Broking.