MUMBAI: Indian share prices plunged 4 % yesterday on higher cash reserve amounts for banks and fears that overseas funds may exit emerging markets over US credit woes, dealers said.
They said that overseas funds led the sell-off sparked by heavy losses on Wall Street after further problems in the US home loan market while Indian banks were hurt by Tuesday’s increase in their cash reserve requirement.
The Bombay Stock Exchange’s benchmark 30-share Sensex index closed down 615.22 points to 14,935.77.
“There are risk-linked concerns across the global markets. The US subprime loan issue could take weeks to clear so the near term scenario appears weak,” said Ved Prakash Chaturvedi, managing director of Tata Mutual fund.
On Tuesday, the Reserve Bank of India (RBI) hiked the amount of deposits banks must set aside by 50 basis points to 7% in an effort to cut the amount of money available for loans sought by consumers and businesses.
Interest-rate sensitive sectors like property, automobile, metal and banking were the hardest hit. “RBI’s tightening of monetary policy could suck out about Rs160bn ($3.95bn) of excess liquidity,” Rajeev Malik, Asia economist with JP Morgan Chase based in Singapore, said in a note to clients.
The rupee fell on speculation global funds will pare emerging-market assets on growing concerns of losses from subprime loans in the US. The currency, up 9.4% this year, is Asia’s best performer among the 10 most-active currencies as the equity index climbed to a record last week.
The rupee declined as much as 0.5% to 40.56 against the dollar, before closing at 40.455 at 5pm in Mumbai. “Nervousness is setting in across global markets and I see the rupee weakening,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai.– AFP, Bloomberg |
