Mumbai: The rupee dropped on Tuesday as a lower stock market and the dollar’s rebound against major currencies prompted investors to take profits a day after it posted its biggest one-day rise in two months.
The partially convertible rupee ended at Rs48.42/43 per dollar, 0.4% weaker than 48.21/22 at close on Monday when it rose as much as 1.1%.
“Dollar/rupee is well bid because of the fall in the stock market and the dollar’s rebound after last night’s weakness against the majors,” said the head of trading at a state-run bank.
Capital flows into, and out of, the stock market are a key driver for the rupee.
Foreign investors have bought a net $1.4 billion worth of local stocks so far in July, taking net purchases in 2009 to almost $6.4 billion and helping the rupee pull back from a record low of Rs52.2 in early March.
However, the rupee is down 1.1% in July, mainly due to the dollar’s gains against the majors.
The Bombay Stock Exchange 30-share benchmark index, Sensex, dropped nearly 1% on Tuesday, snapping a two-day rise and currency traders said a surge of fund raising by companies from foreign investors were yet to flow into the system.
Tata Steel raised $500 million on Tuesday in an issue of global depositary receipts (GDRs) and Suzlon Energy Ltd collected $202 million in GDRs and convertible bonds.
The dollar rose on Tuesday in a slight recovery from sharp falls the previous session as caution set in ahead of Federal Reserve chairman Ben Bernanke’s congressional testimony.
Moody’s Economy.com said in a recent note investment opportunities in China and India would soon be in hot demand and the return of foreign capital inflows would pile pressure on currency appreciation.
“The Indian rupee is expected to gradually regain strength in coming months, having nosedived last year amid rapid repatriation of funds by foreign investors,” analyst Sherman Chan wrote in a note.
One-month offshore non-deliverable forward contracts, in Singapore were quoted at 48.49/59, marginally stronger than the onshore spot rate, indicating a bullish near-term outlook.
In the currency futures market, the most traded near-month contract on the National Stock Exchange and MCX-SX closed at 48.4400 and 48.4475 respectively, with the total traded volume on the two exchanges at about $1.7 billion.