Wednesday, Oct 05, 2022

Markets give UPA’s Food Security Bill a thumbs down,fear its impact on economy

Meanwhile,the rupee continued with its weakness and breached the 66 mark against the dollar.

A day after the Lok Sabha passed the UPA government’s flagship Food Security Bill,the markets gave the mega welfare programme a huge thumbs down Tuesday over fears that it would further hurt the economy.

Domestic factors also responsible for Indian rupee slide: Chidambaram

The rupee continued with its weakness and breached the 66 mark against the dollar,falling by 3 per cent during the day to close at a new low of 66.24. The benchmark Sensex at the Bombay Stock Exchange broke its three-day surge and fell by 590 points or 3.2 per cent to close below the 18,000 mark at 17,968.

The broader Nifty at the National Stock Exchange fell by 189 points or 3.45 per cent to fall below the 5,300 mark and close at an 11-month low of 5,287.5.

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The fall was also precipitated by an outflow of foreign institutional investor funds as sentiment weakened. According to BSE data,they pulled out a net Rs 1,374 crore from the equity markets Tuesday.

Chidambaram hopeful of 6% growth in FY14

Tuesday’s intraday rupee fall of 3 per cent is the biggest in 18 years,and it was the biggest loser against the dollar during the day and a clear outlier with a 3 per cent fall. In comparison,the Mexican peso was down 1.24 per cent while the Brazilian real fell by 0.8 per cent against the dollar.

While the rupee continues to fall and make imports,foreign travel and education even more expensive for Indians,experts suggested that investors should stay away from the stock market as there was a lack of certainty on when and where the slide would stop. “It is hard to say how much more room there is to fall,” said Jamal Mecklai,of Mecklai Financial Services.

Indian rupee has overshot true level: Chidambaram

Tuesday also saw gold and silver rising sharply. Gold Standard closed at an all time high of Rs 32,585 per 10 grams while silver closed at a six-month high of Rs 56,670 per kg.


The weakness in the rupee and the Lok Sabha’s approval of the government’s $20 billion plan to provide food to the poor at rock-bottom prices triggered the market slump.

Even as Finance Minister P Chidambaram reiterated that the fiscal deficit target of 4.8 per cent of the GDP would not be breached,the market did not take the argument at face value and questioned the government’s ability to meet the fiscal deficit target.

“The food security programme motivated by populist drives is a serious threat to the fiscal deficit. Any spending on food close to the election time will make matters worse for a fiscal deficit that is already hard to achieve,” said Amar Ambani,head of research at IIFL.


The markets also seemed to ignore Chidambaram’s announcement that the Cabinet Committee on Investment had approved projects worth over Rs 1.8 lakh crore.

The biggest losers at the BSE during the day were banking stocks as bond yields strengthened during the day. The banking index at the BSE fell sharply by 5.3 per cent. HDFC Bank which had been trading relatively strong fell by 8 per cent and was the second biggest loser in the sectoral index after Yes bank that fell by 9.6 per cent.

Housing finance major HDFC too fell by 7.7 per cent during the day. Axis bank and ICICI Bank fell by 6.2 and 3.3 per cent respectively while State Bank of India lost 2.4 per cent during the day.

Closely following the banking index was the capital goods index that fell by 4.7 per cent and the power and realty index fell by 4.5 and 4 per cent respectively. The IT index at BSE was the only gainer among sectoral indices as it rose marginally by 0.2 per cent during the day.

First published on: 28-08-2013 at 02:05:53 am
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