Indian equities pared losses and the rupee reversed declines as investors reassessed the effects of Prime Minister Narendra Modi’s shock measures to curb corruption and Donald Trump’s surprise victory in the US presidential election.
The S&P BSE Sensex fell by 338.61 points, or 1.23%, at 27,252.53, after tumbling as much as 6.1% earlier. The rupee climbed 0.3% to 66.4350 per dollar, recovering from a 0.5% drop. A gauge of property shares sank as much as 17% after the government unexpectedly withdrew high-denomination banknotes in a clampdown on black money.
“One should look beyond the short-term impact,” said Navneet Munot, who oversees the equivalent of $18bn as chief investment officer at SBI Funds Management in Mumbai. “When there is indiscriminate selling, several stocks fall more than what the fundamentals warrant. We will look for those opportunities.”
A selloff in global markets eased after a knee-jerk selloff in stocks and rally in haven assets amid speculation Trump as president would increase spending to spur economic growth. The yen, gold and government bonds scaled back gains.
Mexico’s peso led emerging-market currencies lower amid concern US trade policies will become more protectionist. The rupee’s one-month implied volatility surged 39 basis points.
Rs500 ($7.5) and Rs1,000 notes will cease to be legal tender, Modi said in an unscheduled address late Tuesday evening.
The notes in circulation will have to be deposited in banks by the end of December, he said, leading to a rally in sovereign bonds yesterday on expectations of improved financial-system liquidity.
Chaos prevailed across major Indian cities as people lined up outside currency dispensing machines following the announcement. With bullion usually bought in cash in the nation, the announcement led to a frenzy among people wanting to convert their cash hoard into gold.
Some domestic institutional investors used the declines to buy stocks, said Deven Choksey, managing director of Mumbai- based KR Choksey Shares & Securities.
“We told our clients this morning to buy as our markets are suffering from collateral damage, not weak fundamentals,” he said. “All institutional investors, even those who manage money for wealthy individuals, are buying.”
Mutual funds and insurance companies have bought a net $663mn of shares this month, extending October’s purchases of $1.2bn, data compiled by Bloomberg show. Foreigners, in comparison, have bought $55mn, after pulling $746mn in October that was the first selloff in eight months.
The yield on government notes due September 2026 plunged 13 basis points to 6.67%, according to the Reserve Bank of India’s trading system.
The decision to pull high-denomination notes will boost banking system liquidity, according to Vivek Rajpal, an interest-rates strategist at Nomura Holdings in Singapore.
“As black money is reduced, tax collections should improve significantly, and that would be very positive for India’s fiscal situation,” said Ananth Narayan, Mumbai-based regional head of Asean & South Asia financial markets at Standard Chartered. “This is a major crackdown on corruption, and the parallel economy.”
The rupee yesterday rebounded in late trade to end at a two-month high against the US dollar, supported by a recovery in local markets as global markets began to stabilise after a shock victory for Donald Trump in the US presidential elections.
The rupee closed at 66.44 a dollar—a level last seen on September 8, gaining 0.28% from its previous close of 66.62. The home currency opened at 66.79, or 0.25% weaker. However, it recovered and touched a high of 66.41in intraday trading.
So far this year, the rupee has dropped just 0.5%.
Asian currencies closed mixed after Trump won the elections. The Japanese yen was up 2%, China renminbi 0.16%, China offshore 0.05% and Thai baht 0.04%.
However, the South Korean won was down 1.3%, Malaysian ringgit 0.79%, Indonesian rupiah 0.33%, Singapore dollar 0.32% and Philippines peso 0.08%.

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