Mumbai: The rupee eased on worries that foreign funds may pull out more from the wobbly local stock market, but the decline was limited on expectations that the central bank would intervene by selling dollars.
At 9:34 am, the partially convertible rupee was at 42.92/93 per dollar, a shade lower than 9 June’s close of 42.87/88. It hit a 13- month low of 43.21 in late May.
“Today seems to be a continuation of foreigners exiting from stocks and investors will continue to be in a wait and watch mode,” said Patrick Aranha, head of treasury at Mizuho Corporate Bank.
Indian shares are expected to start lower after the main stock index fell 3.25% to its lowest close in nearly three months on Monday. It shed 5.1% last week and is down about 26% so far in 2008.
Foreigners have dumped $4.7 billion of Indian stocks this year, pushing the rupee lower by 8%. Last year, the rupee rose more than 12%, driven by $17.4 billion of capital flows into the record-breaking stock market.
Indian shares are likely to rise from current levels by the end of 2008 but are expected to end the year down 16%, ending a six-year bull run that saw the market rise more than six-fold, a Reuters poll shows.
“With most developing markets including India grappling with the problem of inflation and untenable fuel subsidies, this is likely to sour general sentiment and possibly trigger further outflows,” ICICI Bank said in a note on 9 June.
But traders were wary the central bank may step in around 43 via state-run banks to support the rupee. It is estimated to have sold around $400-$500 million on Monday.
One-month offshore non-deliverable forward contracts were quoting at 43.11/43.21, weaker than the onshore rate.