RBI’s Capital Control Measures Trigger Fall In Indices

The Indian markets have turned highly bearish over a fresh slew of measures announced by the RBI today to stem volatility in the rupee. These measures include a cap on foreign investments by Indians as well as a ban on gold imports. The apex bank had earlier increased the short-term lending rates in a bid to salvage the rupee. This impacted the banks, but the rupee slide showed no signs of stopping.

As per the latest moves, the RBI has imposed a 300% cut on overseas investments by Indians to only 100%. This makes it very difficult for domestic companies to buy foreign assets. The apex bank has also banned Indians from investing in overseas properties. In addition, individual remittances have been cut to USD 75000 per year against the earlier limit of USD 200000 per year.

The heavy ban is a part of the regulator’s attempt to stabilise the currency. However, corporates who wish to set up overseas projects will be sorely hit. It will also reduce their attempt to diversify risk.

The market has sensed the strong intention of the apex bank to bring about strict capital control measures. The RBI has also signalled that it will stop at nothing to curb the rupee slide. The country’s equity markets too have plunged by more than 3%, with the BSE Sensex down 3.6% at 18674 and Nifty 3.7% lower at 5532. This is for the first time after September 22, 2011 that the markets have crashed by over 3%.

A huge fall has been seen in the Consumer Durables index, which is down by nearly 8%. The BSE Bankex is also down by 5%. Oil and Gas, Metals and Realty are also down over 4% each. Among individual stocks, Titan Industries has fallen by more than 11% today, as many brokerage houses have downgraded the stock.

Ironically, after the new measures, the rupee has moved to a fresh low of 61.73 against the dollar as of 2 pm today (August 16).