Jaguar Land Rover owner Tata Motors slumped the most since 2012, sending India’s benchmark stock index to its biggest drop in almost four months as Britons confounded markets and bookies by voting to leave the European Union.
Tata Motors, whose JLR unit gets a quarter of its sales from Europe, plunged 7.9%, the worst performer on the S&P BSE Sensex. Tata Steel, which has plants in the UK and the Netherlands, tumbled 6.4%. State Bank of India, Axis Bank Ltd and ICICI Bank slid at least 3%. India VIX Index, which measures the cost of protection against market fluctuations, surged to a three-month high.
After resuming lower at 26,367.48points, the Sensex continued its slide to crack below the 26,000-mark and hit a low of 25,911.33, before closing 2.24%, or 604.51 points, lower at 26,397.71.
“We replicated Asian markets and fell like nine pins in the morning before investors began to realize that the impact from the vote would be limited to a sub-section of the market,” Kaushik Dani, a fund manager at Karvy Stock Broking Ltd in Mumbai, said by phone. “There was buying in sectors where the British pound has no role to play. The currency market also provided a good amount of support.”
Tata Consultancy Services, Infosys and Wipro, the nation’s largest software exporters that get a quarter of their revenue from Europe, retreated. In comparison, motorcycle maker Bajaj Auto, Mahindra & Mahindra, which produces tractors, and Asian Paints were the best performers on the Sensex.
Financial-services companies rallied. Muthoot Finance, Max Financial Services and Bajaj Finserv rallied to records, while Manappuram Finance climbed to its highest since May 2011. State Bank of Bikaner & Jaipur and Punjab National Bank gained more than 2% each.
“Keep your buy list ready” as the nation’s improving economy would help minimize the impact from external events, said Vikas Khemani, chief executive officer at Mumbai-based Edelweiss Securities. He’s bullish on companies linked to the domestic economy such as lenders, engineering and consumer companies.
Some investors are concerned the UK’s exit could curb demand for emerging-market assets, halting the 18% rally through Friday in the Sensex from a low in reached in February. The rebound had put India on course to become the first among a valued at more than $1tn to crawl back from a bear market this year.
“India is one market where investors have made money after the recent rally, and it is easy psychologically to sell,” Nikhil Johri, chief investment officer at Trivantage Capital Management India in Mumbai, said by e-mail. “Brexit will compel a few foreign funds to lighten the positions in Indian markets as they look for dollar returns.”
Overseas funds have bought $657mn of shares in June, set for the fourth month of purchases, data compiled by Bloomberg show.
UK Prime Minister David Cameron resigned, saying he’d serve another three months, after a 52% majority rejected his pro-EU campaign. The result sets the UK up for years of bitter divorce talks with the first round likely to come at an EU leaders’ summit next week. Britain must now count the economic and financial cost of an exit that Cameron warned would spark a recession.
“I don’t think people were ready for this outcome,” said AST Rajan, senior managing director at Aquarius Investment Advisors in Singapore. “It’s probably time to nibble at some Indian stocks and wait to see the unraveling of the rest of the financial markets to decide what to do.”
Meanwhile the rupee closed at 67.97 a dollar—a level last seen on February 29, own 1.06%, its steepest fall since August 24, 2015, from its previous close of 67.25. The rupee opened at 67.90 against the US dollar and fell as much as 1.42%, its steepest fall since November 2013, to touch a low of 68.22.
India’s 10-year bond yield closed at 7.476%, compared with Thursday’s close of 7.481%. So far this year, FII’s have sold $1.78bn in debt. The dollar index, which measures the US currency’s strength against major currencies, was trading at 95.751, up 2.37% from its previous close of 93.529.
The results of a referendum vote showed that more than 50% of Britons voted to break out of the EU, driving the pound sterling to a 31-year low. The results for UK’s EU membership referendum have taken global markets by surprise as various surveys had indicated that the vote would be in favour of remaining within EU. Equities and currencies had been gaining over the past three days on indications that Britain would vote to remain within EU. The pound sterling had gained over 2% on such hopes and global equities had also risen.
Asian currencies fell against the US dollar, South Korean won fell 2.44%, Malaysian ringgit 1.86%, Singapore dollar 1.3%, Indonesian rupiah 1.07%, Taiwan dollar 0.97%, China offshore 0.83%, Philippines peso 0.8%, China renminbi 0.62%, Thai baht 0.62%. However, Japanese yen was up 3.65%.
Currency dealers said that although the rupee is widely expected to weaken gradually, Brexit has exacerbated the fall. Further, the drop to its all-time lows of 68.85 per dollar hit in August 2013 could now be faster, said one currency dealer.
The negative sentiment against the rupee was visible in the offshore non-deliverable forward (NDF) market where the one-month NDF rate dropped to 68.43 per dollar and the three-month rate fell to 69.16 a dollar.
“It is dollar all the way and all the major currencies are down. Brexit is unexpected and so we are going to see volatile period ahead. It will not only have repercussions for the currency but all markets globally,” said Ashutosh Raina, head of trading at HDFC Bank.
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