Indian rupee dropped to a lifetime low of 62.03, BSE Sensex loses over 4 per cent

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Time for reflection, said Finance Minister P Chidambaram on Friday. 	Prem Nath pandey Time for reflection, said Finance Minister P Chidambaram on Friday. Prem Nath pandey
SummaryCalm down, says Chidambaram, but fearful investors not convinced.

A triple blow stunned the financial markets today: the rupee dropped to a lifetime low of 62.03, the Sensex plunged by over 4 per cent, its biggest one-day drop in two years, bond markets went haywire and gold surged to a two-year high as fears of a return to a capital-control regime haunted investors.

The markets are concerned that additional steps by the Reserve Bank of India to keep the rupee from depreciating will hurt even more with shareholders losing more money, companies booking losses and even investments in safe haven debt mutual funds turning in losses.

The mayhem in the markets was a reaction to the capital controls the Reserve Bank of India imposed on Wednesday evening which, allied with the better-than-expected data on recovery in the US, began the frenzied slide. No wonder that the Indian market was the worst performer among all major markets, globally.

Finance Minister P Chidambaram and RBI officials asked for calm in the markets along with denials of any plans to halt for deeper capital controls on the back of repeated RBI and government interventions since June when foreign investors have pulled out over $4 billion.

But not many were relieved. Indian industry leaders tore into the RBI measures with CII chief S Gopalakrishnan describing the reduction of limit in outward investment from 400% of net worth to just 100% under the automatic route as “drastic” while FICCI president Naina Lal Kidwai said the markets are afraid there will be more restrictions including for repatriation of capital by the FIIs. “These fears need to be addressed,” she said.

Chidambaram said: “I have no doubt in mind when calm is restored in the market, people will begin to understand that market indicators must basically reflect Indian market conditions.” As an example, he said the Indian government will release GDP data for the first quarter of FY 14 at the end of August.

Later, top officials told The Indian Express the government

has lined up $4 billion to bolster foreign exchange reserves which includes a $2-billion corpus from residual stake sales in Hindustan Zinc Ltd and Balco.

Successive efforts to shore up the rupee is weighing heavily on the markets, said Jayesh Mehta, country treasurer and MD Bank of America Merrill Lynch. Every week the government is adding nearly Rs 15,000 crore to its borrowing cost, with the liquidity mop up measures the RBI has

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