Dubai: Sell-off of the financial stocks along with a weak rupee and high crude oil prices dragged the S&P BSE Sensex down 536 points on Monday and the NSE Nifty50 lost nearly 170 points to close below 11,000-mark — slipping into the red for the fifth consecutive session.

The rupee weakened during the day to trade around 72.59 per US dollar against the previous close of 72.20 per greenback. With all the major sectors contributing to the sell-off, top sectoral losers were banking, auto and finance.

The BSE Sensex, which had opened at 36,924.72 points, provisionally closed at 36,305.02 points, lower 536.58 points or 1.46 per cent from the Friday’s close of 36,841.60 points.

Action promised

Indian authorities promised on Monday to support financial markets rocked by growing concerns of defaults by non-bank finance companies.

Investors are concerned as India’s shadow banking sector could face a liquidity crisis following a key player in the sector, Infrastructure Leasing & Financial Services Ltd. missed debt payments on Friday. Investors are also spooked by a host of other factors such as surging bad loans at banks, a plunging currency and volatile stocks as foreign investors pull money from emerging markets.

The government will provide adequate liquidity to mutual funds and non-bank financial companies, Finance Minister Arun Jaitley said on Monday. His tweet followed a joint weekend statement from the central bank and capital markets regulator promising action to protect investor interests.

Both the Reserve Bank of India (RBI) and markets regulator Securities and Exchange Board of India (Sebi) said on Sunday that they were closely monitoring developments in the financial sector and were ready to take appropriate action if required.

Also on Sunday, the country’s largest lender — state-run State Bank of India (SBI) — asked NBFCs not to worry about credit availability. “Some comments are being attributed to the SBI about it being wary of lending to the NBFCs. The rumours are baseless. The SBI lends support to the NBFCs in private and public sectors within the regulatory policy framework and will continue to do so,” SBI chairman Rajnish Kumar said in a statement.

Analysts expect the Reserve Bank of India (RBI) to conduct more open market bond purchases to add liquidity to the market and calm investors, while others see a special refinance window for non-banking finance companies and mutual funds.

“In our view, an acceptable solution is for the RBI to step up open market purchases that may spark off a rally in government securities that will bring back debt foreign portfolio investments and support the rupee,” said Aastha Gudwani, an economist at Bank of America Merrill Lynch.

According to BoAML analysts, the RBI has been delaying open market bond purchases as it fears that this will weaken rupee and keep foreign debt investors at bay. On the contrary analysts say bond purchase will support both rupee and liquidity

“The debt foreign portfolio investors stay away as they fear that the RBI will hike rates to defend the rupee. As a result, we end up with a vicious circle of yields rising with RBI delaying open market purchase and a weaker rupee with continuous debt foreign portfolio outflows,” said Indranil Sen Gupta, an economist at BoAML.