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Double-barrel assault Weak rupee, rate fears maul stocks

Mumbai, Oct. 14: Stocks went into a tailspin for the second straight day, leaving the sensex clinging to the 8,200-threshold by a thin thread and triggering fears that the slide could deepen into a wider market meltdown.

The benchmark index was today teetering at 8201.73 after a 175-point convulsion ' it took a 164-point knock on Thursday ' caused by the decision of foreign institutional investors (FIIs) to stay off the trading floor.

Sebi data on trading patterns showed them dumping shares worth Rs 400 crore on Thursday. This fitted into the larger trend that put their sales till October 13 at Rs 1000 crore.

Reasons for the selloff have been many but two of them are believed to have been the biggest ' the most fatal. The first is the weakness of the rupee, which is struggling to stay above the crucial 45-mark against the dollar.

The second is the spectre of rising US rates, which could lure cash meant for stocks into American bonds.

Then, there is October 25, the day the Reserve Bank unveils its monetary policy that many fear could nudge local interest rates up and starve bourses of liquidity. The rise in inflation above 4 per cent, too, will not help matters for those expecting borrowing costs to remain steady.

Local currency wobbles means lower returns for FIIs who have to convert rupees into dollars they send back abroad.

“Hedge funds have been selling in the markets as a declining rupee is a straight hit on their chin,” said a fund manager affiliated to a leading foreign portfolio fund. These funds normally invest for the short-term and are the first to scamper out in a stock or currency slump.

Today, however, the rupee bounced back to 44.85, a 10-paise recovery from Thursday’s finish of 44.95.

The benchmark BSE index just seemed to mirror these concerns as it settled at the lowest point since September 14. The nifty lost 52.90 points or 2 per cent at 2484.40.

“The correction is getting overdone and some kind of reversal will happen,” the fund manager said.

Weeks back, heady soothsayers talked about an ascent above 9000 points just when the sensex was hovering around 8800.

ACC saw its shares crack up as investors ignored second-quarter numbers. The stock rappelled down 6.5 per cent to Rs 140.05 crore. Lipitor-licked Ranbaxy also saw its scrip slide 3.8 per cent to Rs 441.

ICICI Bank shares also suffered, a day after it announced that it would launch a Rs 8000-crore public issue.

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