Rupee sees longest losing run in 15 months on higher FII selling

Rupee sees longest losing run in 15 months on higher FII selling

Mumbai: The rupee fell for the sixth day, its longest losing streak in 15 months, to the lowest in a month after overseas investors increased sales of local stocks.

The currency had the biggest weekly decline since August after data from the stock market regulator showed funds based abroad sold the most Indian shares since 19 October.

The rupee declined from near the highest in nine-and-a-half years on concern that oil prices near a record will boost the country’s import costs, inflating its trade deficit.

“The rupee could experience weakness in the wake of foreign institutional investment outflows from the system," said Namrata Padhye, an analyst at Mumbai-based IDBI Gilts Ltd. “Foreign institutional investors (FII) were net sellers in the equity market over the past fortnight."

The local currency weakened 0.4% to 39.705 against the dollar at close, according to data compiled by Bloomberg. That was the weakest close and biggest drop in a day since 22 October.

The rupee’s decline lowered its gains this year to 11.6% from 12.1% as of Thursday. It is still Asia’s second best performer of 2007, after the Philippine peso. The currency may rise to 39.25 by the year-end and 39 by the end of March, according to the median estimate in a Bloomberg survey.

Overseas funds sold $550.9 million (Rs2,182 crore) more Indian shares than they bought on 21 Novmber, according to the Securities and Exchange Board of India (Sebi). Global investors made net sales worth $951.9 million this month, after making net purchases of $5.1 billion in October and $4 billion in September. The Bombay Stock Exchange’s Sensitive Index lost 4.3% this week.

Fund inflows into the stock market slowed after India last month placed curbs on foreign purchases of derivatives linked to local equities. Sebi on 25 October tightened rules on overseas investment in shares through so-called participatory notes.

The market regulator said overseas funds will have to register before investing in securities linked to Indian equities or sell their holdings within 18 months. Finance minister P. Chidambaram said on Friday the country was confident of gaining control over record inflows of overseas capital.

Overseas investors have bought a record $18 billion in stocks and bonds this year, double their purchases in 2006. “It’s a new situation for us and I am confident that we will gain mastery over capital inflows," Chidambaram told a conference in New Delhi.

The rupee also weakened on speculation demand for dollars to pay for imports from refiners such as Indian Oil Corp. Ltd will increase after oil rose to a record this week.

India depends on imports to meet three-quarters of its energy needs. “Demand for the dollar could increase near the month-end for payments toward import bills," IDBI’s Padhye said. “Crude oil prices are currently trading at elevated levels."

Crude oil rose as high as $99.29 a barrel in New York on Thursday as a weakening dollar boosted demand for commodities. Oil has rallied 47% in the past six months, according to Bloomberg.

India’s trade shortfall averaged $6.2 billion a month in the fiscal year started in April, from $4.3 billion in the year- earlier period, according to government data.