Mumbai: The rupee touched its all-time low against the dollar on Thursday, as foreign institutional investors, or FIIs, continued pulling out of India and other emerging markets.
The currency closed at 50.15/16 to a dollar, somewhat better than the intraday low of 50.60, as India’s state-owned banks started selling dollars on behalf of the Reserve Bank of India (RBI) to prevent the rupee from falling even more.
In 2008, the rupee has now lost about 22% against the dollar and, according to foreign exchange dealers, it is unlikely this downtrend will reverse until FIIs start buying Indian stocks and sentiments in equity market become less bearish.
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Meanwhile, the Sensex, India’s bellwether equity index of the Bombay Stock Exchange, dropped 3.68% to below 8,500 levels on Thursday, as indices across Asia fell sharply, on Wednesday’s 5% fall in the Dow Jones Industrial Average on the New York Stock Exchange. The DJIA was trading 149 points, or 1.9%, down at 7,848.02 at 8.45pm India time on Thursday.
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In the last seven trading sessions, the Sensex has fallen 19.8% or 2,085.15 points, to 8,451.01. Since January, the index has now lost 58.3%.
The National Stock Exchange’s broader 50-stock Nifty index fell 3.1% to 2,500 levels on Thursday. Most major Asian market indices were down significantly. Japan’s Nikkei was down about 7% and Hong Kong’s Hang Seng index dropped 4%. European markets also were trading sharply lower on Thursday.
“There is no doubt that there is a debt deflation bust at work in America. The issue which macro traders will be increasingly focusing on is the risk that the American economy can fall into an outright price deflation,” said Christopher Wood, chief strategist at foreign brokerage CLSA Asia Pacific Markets, in his Thursday report. “If there is more forced deleveraging to come in the hedge fund space, it is most likely to stem from the opaque world of credit hedge funds,” Wood said.
Merrill Lynch’s Asia strategist Mark Mathews, in his report on Wednesday titled Big Foreign Selling of Asia, noted that India has witnessed net foreign fund outflow in 13 of the last 14 weeks. A $13 billion net outflow from India this year is the third highest in Asia.
Market mood: People look at a large screen displaying the Sensex on the facade of the Bombay Stock Exchange building in Mumbai. The Sensex fell 3.7% on Thursday to its lowest close in at least three years. Reuters
With the Sensex at 8,000 levels, the Life Insurance Corp. of India, the largest investor in local equity markets, has renewed buying, said one of its senior officials without wanting to be named. Large mutual funds, which were also waiting for the markets to come to lower levels to start large buying, are now deploying money, claimed some brokers.