Market’s Slide & Rupee Depreciation forced India to exit from $1 trillion Group

Fears of continuing economic slowdown, lack of decision making at the centre, rising fiscal deficit combined with not-so-impressive revenue collections upset Dalal Street investors on 20 December 2011 leading to a 204 points loss in sensex to end at 15175. The loss of 204 points represented a 28-month low for the index and its fifth consecutive session of losses, during which it has lost 827 points, or 5.2%.

The day’s slide was triggered by FII selling which recorded a net outflow of Rs 526 crore, taking the month’s total net outflow to about Rs 1300 crore.

The Indian rupee which had weakened further to go below 53 to a US dollar level again, closed at level of Rs 52.89 on 19 December 2011. The combined effect of the market’s slide and the depreciation of the rupee forced India to exit from the select group of countries with a $1 trillion market capitalization. With BSE’s market cap currently at Rs 52.53 lakh crore, India’s market cap in dollar terms works out to $993 billion.

On 28 May 2007, when the rupee was showing unusual strength against the dollar and hovered around the 40 mark that India had first entered the $1-trillion market cap league. However,  lately the twin effect of rupee’s weakness and the slide of the market combined to drag it below the trillion dollar mark. According to Bloomberg data, India’s market cap so far in 2011 went down by 38%, making it the worst performing market among the 12 countries that were in the trillion dollar club.

Fund raising through ADRs (American Depository Receipts) by Indian corporate houses dried up. There was not even a single ADR issue in 2011. However, companies raised about $220 million through GDRs (Global Depository Receipts) during 2011. The amount raised from GDRs this year is, however, much lower than the mobilization in 2010. The largest GDR of the year 2011 was just $32 million from Rasoya Proteins. The average size of GDR in 2011 was $18.3 million compared to $26.6 million in the previous year.

Even during 2010, there was not even a single ADR issue, with fund raising through this route almost becoming a thing of the past. Data compiled by SMC Global Securities showed that 33 GDR issues mobilized about $880 million in 2010.