BackRupee breaches 68 mark; Sensex closer to bear phase
Rupee at weakest level since 28 August 2013; Sensex below 24,000 for the first time since Modi swept to power
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Mumbai: The Indian rupee breached the psychological level of 68 against the US dollar for the first time since 28 August 2013 as the Sensex inched closer to bear market territory.
The rupee has fallen in 10 out of 14 trading sessions now and is trading at its weakest level since Raghuram Rajan took over as Reserve Bank of India (RBI) governor on 4 September 2013; a week before Rajan assumed office, the rupee hit its all-time low of 68.85.
The currency opened stronger at 67.89 per dollar but incessant dollar buying by banks dragged it to an intraday low of 68.10 per dollar. It closed at 68.03.
India’s benchmark equity index, BSE Sensex, closed at 23,962.21 points, down 0.41% or 99.83 points.
The Sensex has lost 19.26% since its last closing peak of 29,681.77 points hit on 29 January, 2015; A 20% decline over a period of time means an index is in bear-market mode.
The gauge fell below 24,000 for the first time since Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) swept to power in May 2014,
So far this year, the Sensex has lost over 8.25% and the rupee has weakened 2.75% as foreign institutional investors (FIIs) pulled out $1.4 billion from local equities. While foreign investors still remain net buyers of bonds, they have been pulling out of debt since 18 January. So far, FII bought $208.30 million in debt.
Weak Asian currencies and the dollar’s broad strength against most currencies globally also kept the rupee under pressure. Among Asian units, the Taiwan dollar was down 0.27%, China offshore spot 0.1%, Singapore dollar 0.06%. the The Indonesian rupiah was up 0.41%, Malaysian ringgit 0.31%, Philippines peso 0.10% and Japanese yen 0.06%. The dollar index, which measures the US currency’s strength against major currencies, was at 99.037, down 0.05% from its previous close of 99.091.
Fears related to China’s slowing economic growth and a likely further devaluation of the yuan has kept the rupee under pressure this year. Expectations that the currency would hit 70 per dollar during 2016 have strengthened after the rupee’s recent sharp fall.
Kotak Mahindra Bank Ltd, UBS AG, Barclays Plc. and Morgan Stanley all expect the currency to drop to 70 per dollar in 2016, but differ in their expectations of the timing.
“We expect that 70 per dollar to be seen this year’s final quarter," said Abhishek Goenka, founder and chief executive officer at IFA Global, a treasury solutions firm.
Meanwhile, the yield on India’s current 10-year benchmark bond closed lower at 7.749% compared with its Wednesday’s close of 7.797%. It touched a low of 7.736% intraday, a level last seen on 8 January. Bond yields and prices move in opposite directions.
The rally in bonds was on the back of Rajan’s comments on inflation on Wednesday.
“Going forward, we have to disinflate a little more. So, at the meeting (on 2 February), we will take all these factors into account and decide what the next step is, but broadly I would say we are on the right path," Rajan said in an interview to CNBC at Davos.
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