Mumbai: Indian markets opened deeply in the red on Wednesday morning in what is seen by analysts as short-term disruption in the financial system caused by the government’s abrupt announcement that 500 and 1,000 rupee notes will be discontinued.
The Sensex crashed over 1600 points.
They also took cues from global markets, which have been spooked by Republican Donald Trump’s unexpectedly powerful performance in the US presidential elections against Democrat Hilary Clinton. A Clinton win has been favoured by markets as it will mean a continuity in US policy.
The US dollar sank and stock markets slammed into reverse in wild Asian trade on Wednesday morning as the US election turned out to be a nail-biter, sending investors stampeding to safe-haven assets.
Much of the action was in currencies where the Mexican peso has become a touchstone for sentiment on the election as Donald Trump’s trade policies are seen as damaging to its export-heavy economy.
Nearly 40 per cent of India’s economy is driven by small- and medium-sized enterprises that largely run on cash transactions. Economists said Prime Minister Narendra Modi’s demonitisation move on Tuesday evening could impact these businesses, and in turn have a knock-on effect on economic growth.
PM Modi announced the withdrawal of Rs. 500 and Rs. 1,000 notes to crack down on black money and counterfeit currency.
Market analysts welcomed the move. “If you look at India’s economy point of view it’s a very good measure,” said Saravana Kumar, Chief Investment Officer, LIC Mutual Fund, adding, “Inflation will moderate and it’s going to control the fiscal deficit. Black money will come down drastically.”
But some analysts have said that there could be short-term disruption in the financial system. “There would be disruption – Short term pain for long term gain,” tweet market analyst Ambareesh Baliga.