New Delhi: The rupee snapped a six-week rally, dropping the most since the five days ended 8 June, as global investors shunned riskier assets in emerging markets.
The key stock index fell the most in four months on concern the worsening US housing slump will hurt growth in one of Asia’s biggest export markets.
The end to the currency’s rally may ease pressure on the central bank to curb gains after the rupee climbed to a nine-year high this week, said Jayant Chiney, general manager of treasury at the state-owned Bank of India.
“The market has done the job for the central bank,” he said. “The concerns of a long talked-about correction in stocks are now showing on the currency.”
The rupee fell 0.5% this week to 40.53 at 5pm in Mumbai, according to data compiled by Bloomberg. It touched 40.215 on 24 July, the highest since May 1998.
Currencies in the region including the Philippine peso and the Indonesian rupiah tumbled as Asian stocks posted the biggest losses in four months.
Average daily Indian share purchases by global funds this month more than tripled to $261 million (Rs1,052 crore) from June, making the rupee the second best performer in Asia this year.
The Reserve Bank of India (RBI) stepped up dollar purchases to stem the rupee’s advance as the country’s top four software exporters said the rising currency eroded their profit margins.
Infosys Technologies Ltd, India’s second biggest software maker, cut its profit and sales estimates for the year ended 31 March while Satyam Computer Services Ltd, the fourth biggest, missed forecasts and reported the slowest profit growth in three years for the quarter ended 30 June.
The country’s foreign-currency reserves, a gauge of the central bank’s dollar purchases, rose by $5.5 billion in the two weeks through 13 July, from a gain of about $5.1 billion for the whole of June, according to data provided by RBI.
The implied volatility of one-month rupee options climbed after holding at 6.15% since 18 July, near the lowest in three months, Bloomberg data show, on concern investment into Asia’s fourth biggest economy will slow, pushing the rupee lower.
The Bombay Stock Exchange sensitive index, or Sensex, on Friday fell 3.4% from near a record. Global funds sold more Indian shares than they bought for the first time in 19 days on 25 July, the latest data provided by the Securities & Exchange Board of India show.