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Capital control fears trigger stock market plunge, steep fall in Re
Sanjeev Sharma/TNS



An almost 770-point Sensex drop left investors poorer by over Rs 2 lakh cr
The rupee breached 62 for the first time, falling to 62.03 before recovering to close at a record low of 61.65
Seeking to calm rattled investors, the government and the RBI said there was no reverting to capital control regime

New Delhi, August 16
It was a carnage on Dalal Street as the Sensex plunged 769 points its biggest fall in four years as the perfect storm engulfed Indian markets on Friday. The rupee plummeted to an all-time low of 62 to the dollar on concerns over capital controls reminiscent of 1991 kicking in and fears of withdrawal of the monetary stimulus in the US.

The Sensex fell 769.41 points, or 3.97 per cent, to 18,598.18, leaving investors poorer by more than Rs 2 lakh crore. The rupee breached 62 for the first time, falling to 62.03 before recovering to close at a record low of 61.65.

The Reserve Bank of India (RBI) had on Wednesday announced measures to curb forex spending for individuals and corporates abroad, which spooked investors and was slammed by the industry today. The Confederation of Indian Industry (CII) said the move would further vitiate investor confidence, which is already low, and would send a wrong signal that India is not a place for doing business. The long-term credibility of the country, too, would suffer as overseas businesses may have doubts about policy stability.

The weak fundamentals of the economy coupled with global factors and a rupee in free fall have led to a cocktail of unfavourable factors coming together at the same time. In addition, several measures announced by the RBI and government on the rupee and to boost investments have yet to take effect.

On the other hand, gold a commodity on which the government has declared war by curbing imports and hiking duties rose the most in two years by Rs 1,300 to close above Rs 31,000 per 10 grams.

Seeking to calm rattled investors, the government and the RBI said there was no reverting to capital control regime. Finance Minister P Chidambaram said the market should not be so sensitive to data flowing from the US.

"When calm is restored in the market, people will begin to understand India market indicators must basically reflect Indian market conditions. They should not be so sensitive to data coming out of the US," Chidambaram said on the sidelines of an event in New Delhi.

Analysts said markets fell on concerns over the rupee and US tapering. Dipen Shah, head of Private Client Group Research, Kotak Securities, said markets capitulated today after showing strength early this week.

Markets started on a soft note on weak global cues, but fell suddenly and sharply on continuing concerns over the depreciating rupee and tapering of the monetary stimulus by US Fed. The rupee has remained weak despite various measures undertaken by the government and RBI due to the high level Current Account Deficit.

The industry slammed the move to put capital control measures. Ficci president Naina Lal Kidwai said with the rupee touching 62 for a dollar and the largest fall in the equity markets, a sense of despondency continues.

The markets today experienced a free fall and have not reacted well to the Central Bank's restrictions on rupees flows offshore with heightened fears that more restrictions may come, including for FIIs. These fears need to be addressed. After all, India has never restricted dividend flows offshore or indeed sales of equity share proceeds even when the situation was more dire. The fall in the rupee essentially underlines weakness in the economic fundamentals, she said.

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