Britain’s ‘leave’ vote rattles the rupee

` dips 71 paise to 67.96 as investors take shelter in dollar; BSE bellwether index crashes 604.51 points

INVESTORS RUSHED for the exit as Brexit — exit of Britain from the European Union — on Friday turned into a reality, sending the domestic stock markets plunging across the board in line with a global sell-off in stocks and currencies. The rupee triggered the weak sentiments in the market (as it opens 15minutes before the stock markets) and plunged 71 paise or 1.06 per cent to close at a four-month low of 67.96 as investors looked to take shelter in US dollars.

As soon as the markets saw the likelihood of Brexit gaining prominence (from the counting trends), stocks began to tumble and crashed more than 1,090 points in the early trade hours with foreign and domestic investors pressing the panic button. The FPIS sold equities worth a net of Rs 629 crore from Indian markets on Friday.

After crashing over 4 per cent in early trade in the wake of the global turmoil, the Sensex recovered some lost ground before ending the day at 26,397.71 points, down 604.51 points. The broader Nifty index fell 2.2 per cent to close at 8,088.60 after earlier plunging as much as 4.15 per cent.

The Reserve Bank of India (RBI) intervened in the market to infuse liquidity and sold dollars, aiding the recovery of the rupee and the Sensex. While the rupee opened sharply lower at 67.91 against Thursday’s closing level of 67.25 at the Interbank Foreign Exchange (forex) market and went down further to 68.22 on initial heavy dollar demand from banks and importers, it later recovered to close at 67.96 at the end of the day. Indian rupee was however, one of the more stable currencies as euro and Indonesian rupiah fell by 2.8 per cent and 1.6 per cent, respectively, against the dollar. While Chinese Yuan renminbi fell 0.76 per cent, Japanese yen gained 3.5 per cent against the dollar.

The recovery at the markets were partially aided by assurances from the government including finance minister Arun Jaitley and Reserve Bank Governor Raghuram Rajan. Analysts who termed Brexit as a buying opportunity said they are more concerned about monsoon and investors should look to accumulate. “We see Brexit as buying opportunity in the long term. While it is difficult to predict market movement in the short term, recent correction offers a long term buying opportunity for investors. Will be concerned if monsoon turns adverse, not Brexit,” said S Naren, ED & CIO, ICICI Prudential AMC.

Experts said the markets were worried about the post-brexit uncertainty that may weigh upon the performance of exports and delay in the concretisation of investment plans, partly moderating the expected benefit of the recent FDI reforms.