MUMBAI: A little over five months after Dalal Street witnessed tense trading days following Russia’s invasion of Ukraine late in February, another geopolitical issue impacted market sentiments on Thursday.
Tensions between China and Taiwan after the visit on Wednesday by Nancy Pelosi, speaker of the US House of Representatives, and the start of a military exercise by China weighed on investor sentiment in India. As a result, the sensex lost over 1,100 points on Thursday from its early high 58,713 to an intra-day low of 57,577. But it recovered most of the lost ground to close at 58,299 — down just 52 points on the day. This was the first loss for the index after six continuous sessions of gains.
The weakness of the rupee and the widening trade deficit left traders on Dalal Street nervous as these raised chances of a 50-basis-point (100bps = 1 percentage point) rate hike by the RBI on Friday, market players said. The weakness of the rupee could also prompt foreign investors to again start taking money out of India, they said. After remaining a net seller for nine consecutive months, foreign investors had turned net buyers in India again in July. But a weak rupee could again lead to outflow of funds from the country. On Thursday, foreign investors were net buyers of stocks at Rs 1,475 crore, BSE data showed.
In the inter-bank forex market, the rupee fell to a low of 79. 84 against a dollar in intraday trade on Thursday. Here too the main issue was fears of an escalation of tensions between China and Taiwan. The rupee dipped despite a fall in crude oil prices with Brent trading at $96. 75 per barrel. The rupee opened weak and fell to the day’s low in the afternoon session before recovering to 79. 47 at close, 31 paise lower than Wednesday’s close of 79. 16. The forex market is seeing extreme volatility with the rupee having moved nearly 2% this week. Dealers said that there was good demand for dollars and believe that the chunky purchases might have been by the government.
“The amount of dollars sold by the central bank to defend the rupee this year is equivalent to the forex reserves of Bangladesh,” said United Financial Consultants managing partner K N Dey.