Indian stock benchmarks yesterday came under panic attack and closed the day with losses of over 1% due to fears of fiscal maths going haywire because of an imminent government spending push to revive the economy.
The risk-off mode was on full display in light of a fresh war of words that broke out between the US and North Korea. US President Donald Trump is “mentally deranged” and will “pay dearly” for his threat to destroy North Korea, the communist country said as its foreign minister hinted that the regime may explode a hydrogen bomb over the Pacific Ocean.
From the very start, which saw a lower opening, the Sensex kept rolling down before settling lower by 447.60 points, or 1.38% — its biggest single-day fall since November 15, 2016 — at 31,922.44. 
The loss was the largest in nearly 10 months. This is also the weakest closing since September 11 when the index had come in at 31,882.16. It had lost 53.72 points in the previous three days.
The broader Nifty cracked below the psychologically important 10,000-mark to hit a low of 9,952.80 before ending at 9,964.40, down 157.50 points, or 1.56% — the single-biggest loss since November 15, 2016. This was the lowest closing since September 8. On a weekly basis, the BSE recorded a hefty fall of 350.17 points, or 1.08%, the biggest since 11 August. The NSE, too, ended lower by 121 points, or 1.19%, for the week.
“With global equity markets in risk-off mode over Korean tensions, the ongoing weakness has gained more momentum. Approaching F&O expiry has added to liquidation pressure. 
With FIIs continuing to be net sellers, investors are fretting on the impact on fiscal deficit targets if the government were to go overdrive with economic revival plans,” said Anand James, chief market strategist, Geojit Financial Services.
The rupee was in a sticky spot in the beginning, which dropped to a near six-month low against the dollar during the day, on liquidity concerns after the US Fed said it will roll back its massive stimulus and speculation of a widening fiscal deficit. Sentiment was in tatters after heavy losses in Asia, set off by China sovereign rating downgrade on fears over its ballooning debt and a lower opening in Europe.
There was no let-up in foreign selling as foreign portfolio investors (FPIs) sold shares worth Rs1,204.95 crore while domestic institutional investors (DIIs) bought equities worth a net Rs1,416.55 crore on Thursday, as per provisional data.
Meanwhile the rupee yesterday recovered from its near-six-month low and closed unchanged from its previous close against the US dollar tracking gains in the Asian currencies markets.
The rupee closed at 64.80 a dollar, unchanged from its Thursday’s close of 64.80. The home currency opened at 64.93 a dollar. On weekly basis it declined 1.1%, its steepest fall since November 2016.
Bond yield recovered from its four month high after Bloomberg reported that the government is planning to allow foreign investors to increase purchases of the nation’s corporate debt.
The 10-year bond yield closed at 6.663%, compared to its previous close of 6.675%. Bond yields and prices move in opposite directions.
Asian currencies gained after European Central Bank (ECB) President Mario Draghi signalled that euro-area inflation was still low. Traders will also listen to ECB vice-president Vitor Constancio’s speech in Frankfurt. Traders also awaiting speech by UK Prime Minister Theresa May in Florence, Italy, Bloomberg reported.
Philippines peso was up 0.79%, Japanese yen 0.40%, Singapore dollar 0.30%, Indonesian rupiah 0.2%, Taiwan dollar 0.17%, Thai baht 0.05%. However, South Korean won was down 0.34%, Malaysian ringgit 0.25%.
Earlier in opening trade, the rupee touched a low of 65.11, a level last seen on April 5, on speculation of widening India’s fiscal deficit and worries of escalating tensions between North Korean and US.
According to Reuters, Rs50,000 crore stimulus package was under consideration and fiscal deficit may have widened to 3.7% for fiscal year 2017-18.
North Korea said yesterday it might test a hydrogen bomb on the Pacific Ocean after US President Donald Trump vowed to destroy the country, with leader Kim Jong-un promising to make a “mentally deranged” Trump pay dearly for his threats, Reuters reported.
So far this year, the rupee has gained 4.8%, while foreign institutional investors (FIIs) have bought $6.40bn and $20.57bn in equity and debt, respectively.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 91.981, down 0.29% from its previous close of 92.259.