Mumbai: The rupee fell for the second day after the benchmark stock index extended losses, stoking concern global funds will reduce investments in local assets.
The currency weakened after the Sensitive Index declined for the third day. It also slipped on speculation losses in Asian stocks will deter global investors from increasing investments in the region.
“The current trend in the rupee is closely tied to fluctuations in stocks,” said Manoj Rane, treasurer at the Mumbai unit of BNP Paribas SA. “The rupee market is using stock market movements to gauge future capital flows.”
The rupee fell to 39.34 per dollar in Mumbai from 39.3275 on 16 November, according to data compiled by Bloomberg. The currency’s 12.5% gain this year is the second best performance by an Asian currency after the Philippine peso.
The median estimate in a Bloomberg News survey predicts the rupee will climb to 39.25 by the year-end and to 39 by the end of March 2008.
The Bombay Stock Exchange’s Sensitive Index dropped 0.3% on Monday.
The currency advanced earlier on speculation India’s economic growth will attract increased investment from abroad.
Finance minister P. Chidambaram said on 14 November that India’s economy will expand “about” 9% this year, near the quickest since 1989.
“The medium-term outlook for the rupee continues to be positive as India’s growth story remains intact and capital inflows continue,” said V. Ravi Kumar, senior director of treasury at IDFC Ltd. in Mumbai.
Overseas funds bought a total $258.4 million in Indian shares than they sold in the first four days of last week, compared with net sales of $223.3 million in the five days through 9 November, according to the Securities and Exchange Board of India.
The rupee will extend its advance and companies should prepare for a stronger currency, said chief executive K.V. Kamath of ICICI Bank Ltd., India’s biggest bank by market value. The Indian currency will advance by at least 1 rupee in each of the next few years, Kamath said at a conference in Mumbai on Monday. A size of that move in the next 12 months would be equal to a 2.7% advance.
“The dollar is weakening generally and we are going to see the rupee strengthen,” Kamath said. “It will be appropriate for the industry to plan for a stronger rupee. Companies should start planning today to make business viable in the long run.” Bloomberg