Journalism of Courage
A triple blow stunned the financial markets today: the rupee dropped to a lifetime low of 62.03,the Sensex plunged by over 4 per cent,its biggest one-day drop in two years,bond markets went haywire and gold surged to a two-year high as fears of a return to a capital-control regime haunted investors.
The markets are concerned that additional steps by the Reserve Bank of India to keep the rupee from depreciating will hurt even more with shareholders losing more money,companies booking losses and even investments in safe haven debt mutual funds turning in losses.
The mayhem in the markets was a reaction to the capital controls the Reserve Bank of India imposed on Wednesday evening which,allied with the better-than-expected data on recovery in the US,began the frenzied slide. No wonder that the Indian market was the worst performer among all major markets,globally.
Finance Minister P Chidambaram and RBI officials asked for calm in the markets along with denials of any plans to halt for deeper capital controls on the back of repeated RBI and government interventions since June when foreign investors have pulled out over $4 billion.
But not many were relieved. Indian industry leaders tore into the RBI measures with CII chief S Gopalakrishnan describing the reduction of limit in outward investment from 400% of net worth to just 100% under the automatic route as drastic while FICCI president Naina Lal Kidwai said the markets are afraid there will be more restrictions including for repatriation of capital by the FIIs. These fears need to be addressed, she said.
Chidambaram said: I have no doubt in mind when calm is restored in the market,people will begin to understand that market indicators must basically reflect Indian market conditions. As an example,he said the Indian government will release GDP data for the first quarter of FY 14 at the end of August.
Later,top officials told The Indian Express the government
has lined up $4 billion to bolster foreign exchange reserves which includes a $2-billion corpus from residual stake sales in Hindustan Zinc Ltd and Balco.
Successive efforts to shore up the rupee is weighing heavily on the markets,said Jayesh Mehta,country treasurer and MD Bank of America Merrill Lynch. Every week the government is adding nearly Rs 15,000 crore to its borrowing cost,with the liquidity mop up measures the RBI has announced.
On Thursday evening,the US released data showing employment has recovered more than expected in its economy. Markets in Asia,including India,interpreted this as a signal that days of cheap dollar were coming to an end soon.
As the Sensex fell 770 points,the biggest single-day fall in two years,investors moved to safe haven markets like gold. Its price shot up by Rs 1,310 per 10 gram to Rs 31,010. The rise too is the highest for the metal in a single day in the past two years. Prices of long term bonds have dipped sharply.
This is time for reflection, said Chidambaram,let us see what happens next week. He said nothing has happened in the Indian economy between Wednesday and Friday morning to warrant the scale of fall in the markets.
Economic Affairs Secretary Arvind Mayaram said there is no question of us putting any restriction on capital outflows. These are commercial in nature,which FIIs decide upon. He said the government was not defending the rupee to any particular level. We want it to have a stable environment, he told The Indian Express.
