Sensex falls as R dips on Syria, rating fears

BSE index drops 651pts; currency slides below 68 to a $

MUMBAI/NEW DELHI: It was a Terrible Tuesday for the markets.

Carnage returned to India’s markets on Tuesday with the Sensex tanking 651 points and rupee galloping past the 68 to a dollar mark before recovering to close at 67.63—a fall of 163 paise. The reasons: Fears that a war would break out in Syria amid reports that the US had testfired two missiles in the region.

Markets, which were first hammered by growth forecast downgrades by a string of brokerage and research firms, went into a tailspin at around 2:10 pm immediately after reports citing the Russian defence ministry, said two missile launches were detected from the central part of the Mediterranean Sea, fired towards the east. The report came amid concern about Western military action in Syria.

Later, however, it emerged that the Russians had picked up US-Israel test missiles. But the Indian markets had closed by then. At the time of going to press, the Dow Jones Industrial average in the US had risen 98 points, or 0.7%, to 14,908 on receding fears of war.

US President Barrack Obama’s decision to seek Congressional sanction for military action is certain to delay any decision on the issue till after September 9, when the Congress returns from a recess. And even then, authorisation for an attack against Syria is by no means a given. But before all this became clear, a rattled rupee touched an intra-day low of 68.27, within striking distance of its alltime low of 68.85 on August 28, before recovering a little to 67.63, still down 163 paise or 2.47%.

The benchmark Sensex closed at 18,234.66, a decline of 651.47 points or 3.45%, wiping out nearly two-thirds of 918 points it had gained in a smart recovery over the last four trading sessions.

“The recent uptick in stock prices (over the past few days when the markets bounced up) was just a relief rally,” said S Udasi, Senior VP and Head of Research, IDBI Capital Markets.

During the day, global oil prices also rose in the wake of tensions surrounding Syria. If this trend continues, it will lead to higher petrol and diesel prices in India, which imports 75% of its crude oil requirements.

Besides, a higher import bill will push up foreign exchange outflows, worsening the current account deficit—the gap between dollar inflows and outflows—and weaken the rupee further.

The prospect of a credit rating downgrade to “junk” also cast a very long shadow over the market with Standard & Poor’s stating that that the chances of a downward revision of sovereign rating was higher for India than Indonesia.

After JP Morgan, HSBC Global Research and Nomura, Goldman Sachs, too, cut India’s growth forecast for this fiscal to 4% from 6% earlier and said it expects the rupee to touch 72 against the dollar in the next six months.

The Indian economy grew 4.4% during April-June, the lowest in four years. It had grown 5% in 2012-13.

Amit kumar pandey