Indian rupee suffers biggest slump in 6 years amid Kashmir uncertainty
Dubai - The Sensex was down 418.38 points at 36,699.84, while Nifty was down 134.80 points at 10,862.60.
Indian stocks fell sharply but ended off lows on Monday while the rupee suffered its biggest one-day fall in six years against the dollar as festering tensions and uncertainty over Jammu and Kashmir status and concerns over US-China trade war rattled markets.
At close, the Sensex was down 418.38 points at 36,699.84, while Nifty was down 134.80 points at 10,862.60. Foreign institutional investors (FIIs) remained net sellers in India's capital markets, pulling out Rs28.88 billion on Friday, as per provisional data.
Rupee traded lower by 92 paise at 70.51 per dollar (19.21 against dirham) against Friday's close 69.59 per dollar (18.96 against dirham). The Indian rupee registered a three-month low following the slide in yaun, which declined below seven to a dollar for the first time since 2008.
India's Home Minister Amit Shah earlier on Monday proposed to revoke Article 370 of the Constitution, which gives special status to Jammu and Kashmir and said the state would be split into two Union Territories: Jammu and Kashmir with an Assembly and Ladakh without one.
"Multiple headwinds led to the day's market volatility. Concerns of a political crisis brewing in J&K and no further cues on the exclusion of surcharge for Foreign Portfolio Investors (FPI) added to the market volatility," said Vinod Nair, head of Research, Geojit Financial Services.
"Selling was broad-based despite late recovery witnessed in auto and banks, and IT held on to gains due to a weakening rupee. Consolidation may extend given the headwinds in global trade negotiations and the risk aversion strategy adopted by the FPIs," Nair added.
Analysts said the Kashmir development was an add-on to the US-China trade tension, which was the main cause of the Monday's market fall. Global markets came under further stress after China vowed to respond to the US tariffs announced last week.
Major US stock indices fell more than one percent early Monday, joining a global selloff as a steep drop in the Chinese yuan exacerbated US-China trade war worries.
About 20 minutes into trading, the Dow Jones Industrial Average was down about 500 points, or 1.9 per cent, at 25,983.81. The broad-based S&P 500 fell 2.0 percent to 2,874.83, while the tech-rich Nasdaq Composite Index slumped 2.5 per cent to 7,801.37.
"US stocks are extending last week's largest drop of the year," noted Charles Schwab analysts.
Asian shares suffered their steepest daily drop in 10 months as trade friction sent the yuan slumping to a more than decade trough. The yuan's depreciation spurred a sell-off across Asian markets, with Tokyo shedding 1.7 per cent and Shanghai falling 1.6 per cent. Hong Kong, meanwhile lost 2.9 per cent as pro-democracy protesters targeted the financial hub's transport network in a citywide strike aimed at forcing concessions from its pro-Beijing government.
Gulf stock markets also tumbled. Qatar's index plunged 4.2 per cent to its biggest single-day loss since June 5, 2017, wiping out gains for the year in its fifth straight session of losses
The Saudi Arabian index which was also hit by disappointment over some corporate earnings, fell 1.1 per cent with all its banking shares falling
In Dubai, the index fell 2% with property and financial stocks weighing heavily on the index. Dubai Islamic Bank slipped 2.1 per cent and Emaar Properties, dropped 3.3 per cent.
In Abu Dhabi, the index was down 1.9 per cent. Market heavyweight lender First Abu Dhabi Bank dropped 2.2 per cent, while Emirates Telecommunications Group lost 2.6 per cent.
"China's retaliation by way of halting some US imports & letting the currency weaken against the dollar is impacting markets worldwide. Mena equities tend to correlate more with Global markets during extreme movements," said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital.
"For the Middle East, tumbling crude oil prices is yet another negative."
Moreover, Europe's stocks dived about two percent, mirroring heavy falls in Asia. In mid-day trade, London's FTSE 100 fell 2.1 per cent at 7,248.96 points, Frankfurt's DAX 30 dropped 1.5 per cent at 11,692.93 and Paris CAC 40 shed 1.8 per cent at 5,262.95 points.
"European equity markets have been rocked by the rising trade tensions between the US and China," said IG analyst David Madden
"There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time."
Analysts at Capital Economics said currencies from the rest of Asia have fallen back sharply following today's drop in the renminbi to below 7.0 against the dollar, and are likely to weaken further over the coming months. "While weaker currencies are unlikely to stop central banks from cutting interest rates again this year, they are likely to make them more cautious, especially in Indonesia."
"The country that arguably has the most to lose from a weaker renminbi is Korea, since its exports overlap with exports from China in many more categories (including shipbuilding, electronics and automotives) than exports from other Asian countries," said analysts at Capital Economics.
The investor sentiment in India is already weak owing to an exodus of foreign funds on account of weak corporate earnings results and the controversial super-rich tax proposed in the budget last month.