Mumbai: The rupee dropped the most in almost four months as a collapse in global stocks extended to a second week, spurring speculation foreign funds will sell riskier assets including emerging-market shares.
The currency declined to the lowest since 12 January on concern slowing growth in Asia’s fourth-biggest economy will prompt fewer stock purchases. Overseas investors sold more Indian equities than they bought for the fourth day, according to the latest data provided by the market regulator.
“Should this global meltdown in stocks extend even further, then we’re looking at the currency weakening more,” said Paresh Nayar, head of bond and currency trading at Development Credit Bank Ltd. in Mumbai. “We need to see how long this slide in stocks will continue.”
The rupee fell as much as 0.6% to Rs44.5725 against the dollar 2:28 p.m. in Mumbai, the biggest drop since 13 November, according to data compiled by Bloomberg. It ended at Rs44.2938 on 2 March, the weakest close since 18 January.
The $854 billion (Rs38,15,029 crore) economy expanded 8.6% in the three months ended 31 December, a report showed 28 February, slower than 9.2% in the previous quarter and the 9.3% median estimate of 10 economists in a Bloomberg survey.
Global funds sold a net $695 million of Indian stocks in the four days through 1 March, the Securities & Exchange Board of India said, the most in a week since 12 January. The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, is down 15% from a record reached on 8 February. The index in February fell the most in eight months.
The rupee may decline in coming weeks on speculation some companies will start purchasing dollars as they pay interest on overseas loans, according to Ravi Pai, head of foreign-currency trading at HDFC Bank Ltd in Mumbai.
Purchases of the US currency by India’s central bank prevented the rupee from breaking a 16-month high reached on 6 February. The rupee may extend losses as US interest payments increase demand for the dollar, he said.
Foreign-exchange reserves in the three weeks ended 23 February rose $13 billion, suggesting the central bank has been intervening to manage volatility. Through November and December, the Reserve Bank bought $5 billion, according to data on its Web site.
“There’d been a great deal of support for the dollar around Rs44.10, and a lot traders have sold the US currency betting on a stronger rupee,” Pai said. “When demand for payments starts building up, we can see the Indian currency weakening” to Rs45.20 a dollar in two months.
The currency strengthened in the forwards market. Investors who want to sell dollars a year from now using rupees receive 2.76% more than the current exchange rate, compared with 2.96% on 2 March, Bloomberg data show.