Moneycontrol Bureau

There was no relief from freefall as investors' sentiment was bruised for the second consecutive session Monday on sharp fall in rupee and fears of QE tapering, sending Sensex nearly 300 points down.

The 30-share BSE benchmark crashed more than 1000 points in two days. Today it fell 290.66 points or 1.56 percent to close more than four months low at 18307.52, but it recovered 168 points from day’s low 18139.15.

The Nifty was down 93.10 points or 1.69 percent to 5414.75 after hitting an intraday low of 5360.65, weighed down by banks, auto, telecom, FMCG and oil & gas stocks.

Structural problems plaguing market have been there for sometime, only it is more visible now, says Dipen Sheth, Head-Institutional Research, HDFC Securities. Earlier it was hidden under global liquidity flows, he adds.

With signs of US tapering its bond buying programme, FIIs are pulling out and there is general mayhem in the market, Sheth reasoned.

However, Andrew Holland, CEO, Ambit Investment Advisors feels that investors would turn bullish on India if the central bank cuts rates to revive growth and the government bites the bullet of fuel price hike.

Foreign institutional investors have net sold Rs 1,215.81 crore worth of index futures while they bought Rs 320.54 crore worth of stock futures today, as per provisional data available on NSE website.

The domestic currency continued to play havoc in the market as it breached the 63-level against the US dollar in late trade despite several measures taken by the government and Reserve Bank of India to curb the rupee fall from mid of July.

The Indian rupee closed at a new record low of 63.13 against the dollar, down 2.4 percent compared to previous day's closing value of 61.65 per dollar. It marks the biggest single day fall in a decade.

Experts believe the rupee may shot the oil imports’ bill that may expand the current account deficit of the country.

According to Sheth, the currency weakness is completely driven by the huge current account deficit. He sees very little reason for investors to flock back to India.

The other worrisome factor for weakening rupee was the fear of scaling back of US stimulus after better-than-expected US economic data last week.

Minutes of the Federal Open Market Committee meeting are due to be out on Wednesday. Experts say better-than-expected US economic data led to increasing concern that the Federal Reserve may start easing its stimulus programme as early as next month, which may prompt FIIs to pull out from emerging markets.

According to Laurence Balanco of CLSA, if 63 against the dollar gets taken out then he doesn’t rule out a move on the rupee to 67-68 to the dollar.

The 7.16 percent 2023, 10-year bond yields were at highest level since August 2008 on rupee weakness, rising 4 percent or 33 bps to 9.22 percent.

Stock specific action

The BSE Auto and Banked plunged more than 3 percent followed by Healthcare, FMCG and Capital Goods indices with 2-2.5 percent loss while the Metal Index rose 1.8 percent from the previous close.

Bank of Baroda, Axis Bank, IDFC, ICICI Bank, Bajaj Auto, Sun Pharma and Tata Motors were top losers (falling 4-6 percent) in the Nifty.

Bharti Airtel shares tanked 4.5 percent on fears that the country's largest telecom player's interest payment may increase on rupee weakness.

"With the RBI-triggered liquidity tightening situation, overleveraged companies may be in for more pain," Sheth explains. Along with the higher borrowing costs, lower EBITDA margins and lower cash generations of these companies, over a period of time their equity value is likely to vanish in terms of having to service the kind of mountain of debt that is sitting on them.

On the gaining side were Tata Steel shares (up 5 percent) on short covering while Infosys rose 1 percent.

The BSE Midcap and Smllcap indices were up more than 1 percent. Declining shares outnumbered advancing ones by 1380 to 885 on the Bombay Stock Exchange.