Mumbai: The rupee fell to the lowest in almost two weeks as the nation’s benchmark share index rounded off its longest losing streak in more than four- and-a-half years, stoking concerns that overseas funds will reduce investments in local equities.
The currency slid for a second day as a decline in Asian stocks boosted speculation that global investors will take money out of the region. Funds based abroad have sold more local shares than they bought this month, after remaining net buyers in the past two months, according to the capital market regulator, the Securities and Exchange Board of India (Sebi). “The rupee has weakened on concern about the stock market trend,” said L.V. Prasad, chief currency dealer at IndusInd Bank Ltd in Mumbai. “Traders have been covering their short-dollar positions to protect themselves in case of capital outflows.”
The rupee declined to 39.37 against the dollar to close on Monday in Mumbai, from 39.32 on 8 November, according to data compiled by Bloomberg. The currency fell as low as 39.42 earlier. The nation’s currency market was closed on 9 November for Diwali. A short position is when an investor borrows and sells an asset in anticipation of making a profit by buying it back after the price has fallen.
The Bombay Stock Exchange’s benchmark Sensitive Index fell for a sixth day—its longest losing run since the six-day slide ended 10 March 2003, according to Bloomberg.
Overseas funds sold Indian shares worth an average $61 million (Rs239.7 crore) a day this month, after making net daily purchases of $203 million in October, Sebi data reveals.
Asian stocks fell on fears that losses related to US subprime mortgages may widen. The Morgan Stanley Capital International (Msci) Asia Pacific Index dropped 2.9% to 158.11 in Tokyo.
The rupee pared losses as banks bought the currency to replenish cash by avoiding costlier money market borrowings. The overnight borrowing rate in the local money market rose today to 8.75%—the highest in almost three months. The increased cost of borrowing cash in the money market will spur “yield-sensitive” investors to buy the rupee from the currency market, JPMorgan Chase & Co. said in a report.
The rupee also declined after a government report showed India’s industrial production grew at the slowest pace in 11 months in September that was below all 15 estimates in a Bloomberg survey, where the median forecast was an increase of 9.2%.