The stock market came under pressure on Monday after the widening current account deficit (CAD) data returned to haunt the Dalal Street after five years.
Current account deficit is a term used for a country's trade situation where the value of the goods and services it imports exceeds the value of the goods and services it exports.
While the Sensex closed 467 points or 1.22% lower at 37,922, the Nifty fell 151 points or 1.30% to 11,438 level. Apart from global factors such as lower Asian, US markets and surging crude oil prices, the crash was propelled by domestic cues such as a falling rupee and surging CAD.
India's current account deficit (CAD) widened to $15.8 billion, which is around 2.4 per cent of the country's Gross Domestic Product (GDP), for the quarter ended June as compared with $15 billion in the same quarter a year before, according to data announced on Friday. The weakening rupee against the US dollar and high crude oil prices in the international market led to a rise in current account deficit in the first quarter.
Today, the market extended losses with the Sensex closing 509 points or 1.34% lower at 37,413. Nifty too fell 150 points or 1.32% to 11,287 level.
The Sensex has lost nearly 1,000 points in the last two sessions in a rout triggered by the worsening trade data. The Nifty too has lost 300 points in the same period.
More than five years ago too, the Indian market and economy faced a similar situation.
On June 27, 2013, RBI said current account deficit stood at a record 4.8 per cent of the GDP or $87.8 billion for the full 2012-13 fiscal. The trade data spooked markets on the same day with the Sensex falling 590 points, rupee breaching 66 level against the dollar and 10 year government bond yields climbing to 8.5%. Interestingly, the Sensex had gained 600 points in previous three sessions. The rupee closed at a record low of 66.24 to the dollar, down 194 paise from the previous close on account of heavy dollar demand from oil importers in month-end. Investors were jittery on downgrade fears which dampened sentiment.
Of late, July trade data for the Indian economy raised concerns over the sharp surge in imports, which led to worsening of trade deficit to $18.02 billion compared with a deficit of $11.45 billion during July 2017.
Gold imports surged by 40.94 per cent in July 2018 to $2.96 billion compared to $2.102 billion in July 2017.
The negative trade data took a toll on the Sensex, Nifty on Monday which fell over 1% each on the first trading day of the week.
Negative leads from global markets as investors were cautious amid fears of a possible escalation in the US-China trade conflict hit the market sentiment.
US President Donald Trump last week threatened tariffs on all Chinese imports, while Beijing warned of retaliation if the US goes ahead with any new measures.
Sentiment also took a blow after Moody's Investors Service said sustained weakening of the rupee is "credit negative" for Indian companies which generate revenue in rupees but rely on US dollar debt to fund their operations.