The rupee closed below 71 to a dollar for the first time on Monday as rising crude oil prices and trade war tensions put pressure on emerging market currencies.
The Indian currency slid 21 paise to close at 71.21 per dollar on Monday as investors hit the panic button late afternoon and pushed the rupee down to 71.25 intra-day.
"Oil prices have spiked, leading to increased demand from oil importers. Also, RBI has taken a back seat with hardly any intervention as there were FPI inflows today," said a senior dealer with a foreign bank, adding that dollar buying has taken place across banks and brokerages.
The BSE Sensex dropped 332.55 points, or 0.86%, to close at a week's low of 38312.52 on macroeconomic worries and after a set of fund managers raised fresh concerns over an April circular from the market regulator related to tighter rules on foreign funds ownership by entities of Indian origin, which they said could lead to massive dollar outflows from the economy.
The Securities and Exchange Board of India in a circular on know-your-customer norms said a company majority owned by non-resident Indians (NRIs) or persons of Indian origin (PIOs) will not be allowed to invest as a foreign portfolio investor in the country.
The broader Nifty tumbling 98.15 points, or 0.84%, to close at 11582.35.
Both the indices recorded the biggest single-day fall since August 2, when the BSE had lost 356.46 points and the Nifty 101.50 points.
Kishore Narne, head - commodity & currency, Motilal Oswal Securities, said, "Trade wars are putting pressure on all emerging market currencies. US is trying to bring down their imports and improve their current account deficit, which will improve their economic situation and strengthen the dollar. With the dollar strengthening foreign portfolio investors are pulling out money from emerging markets. The current account deficit in India is also widening which is also adding to the pressure on the rupee."
The sentiment was also dampened as investors were keeping a close watch on the developments in the trade war between the US and China after President Donald Trump threatened of imposing new tariffs on China.
A sharp rally in Brent crude price to $78.29 per barrel also hit the overall trading mood.
International crude oil prices have been rising on fears that the US sanctions on Iran may hit supplies although the price hike has still been limited amid hopes that Saudi Arabia, Russia and the US will make up for the shortfall.
Fuel prices in the country touched their all-time highs on Monday as rupee fell and crude rose.
"Nifty has gained 1,000 points in two months while Sensex gained 3,330 points. We saw the biggest intra-day low in the two months on Monday. Nifty has broken the support of 11620 points. We may see some more dip and Nifty support will be at 11500-11450. The currency was depreciating earlier too, but the indices were on hold. I don't see any pause in rupee depreciation anytime soon, Chandan Taparia, derivatives and technical analyst at Motilal Oswal Financial Securities said.
On the BSE, FMCG was the top loser, falling 2.14%, followed by BSE (-1.23%), Power (-1.22%), Utilities (-1.17%) and Bankex (-1.15%).
The performance in the broader market was also hit as both the BSE Midcap and Smallcap indices slipped 0.45% and 0.17% respectively.
In the Sensex pack, Hindustan Unilever, Power Grid, Axis Bank, ICICI Bank and ITC were the biggest laggard falling as much as 4.58%.
Meanwhile, according to provisional data, the foreign portfolio investors (FII) and domestic institutional investors (DII) sold shares worth Rs 21.31 crore and 542.12 crore on a net basis on Monday.
Globally, except London's FTSE, all the other indices in Asia, Europe traded lower.
(With agency inputs)
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