Rupee falls to 7-week low on weak shares

Rupee falls to 7-week low on weak shares

Mumbai: The rupee dropped to its lowest level in seven weeks on Thursday weighed by losses in domestic shares which raised concerns of more foreign fund withdrawals, while a broadly strong dollar also hurt.

At 1:00pm, the partially convertible rupee was at 45.65/66 per dollar, after hitting 45.6650, its weakest since 1 December and below its close of 45.45/46 on Wednesday.

Main share index were trading down 0.7%, while the dollar index, a measure of the greenback’s performance against six other major currencies, was up 0.2%.

The rupee ended marginally down on Wednesday, weighed by muted dollar inflows, choppy shares and oil importers’ dollar demand, after gaining earlier in the day tracking Asian peers.

Dealers were disappointed as dollar inflows, which were expected to pick up towards Tata Steel’s ongoing follow-on public issue, remained muted. “Inflows were there but not much. We don’t see too much of (dollar) inflows into Tata Steel even in the next two days that can have any material impact on the rupee," said Ashtosh Raina, head of forex trading at HDFC Bank.

Tata Steel, the world’s seventh-largest steelmaker aims to raise as much as 3,477 crore ($768 million). The company raised 508 crore from 33 anchor investors on Tuesday. The share sale will close on Friday.

The partially convertible rupee ended at 45.45/46 per dollar, marginally below Tuesday’s close of 45.42/43 after moving in 45.3025-45.4700 band. It is expected to move in a 45.20-45.50 band on Thursday.

Shares shed 0.6% on Wednesday, led by a decline in software companies, while outlook remained shaky on interest rate hike concerns.

“There are inflation concerns, and then we have the monetary policy next week which will again impact stocks. So, there will not be much activity in rupee this week," said a foreign bank dealer. India’s central bank is expected to raise key rates by only 25 basis points on 25 January despite sticky inflation, as a slump in industrial production growth suggests some risks to economic momentum still exist, a Reuters poll showed.

Foreign funds are net sellers of $671.2 million worth of shares in the year to Tuesday after pumping in a record $29.3 billion in 2010.

“Rupee will continue to track equity markets. I don’t expect equity markets to hold on to gains as flows are less. Also, since oil prices are rising, there is quite a bit of demand from oil importers for the dollar," HDFC Bank’s Raina said.

Oil is India’s biggest import and refiners are the largest buyers of dollars. Oil prices rose as a drop in the dollar to eight-week lows stimulated buying, and on further signs the global demand recovery is intact after the International Energy Agency raised its growth forecast.

The euro was firmer against the dollar on Wednesday on reported Asian sovereign buying and continued short-covering, though it failed to make a sustained break above the key $1.35 level.

The index of the dollar against six major currencies was down 0.44% during close of local forex market.

One-month offshore non-deliverable forward contracts were quoted at 45.77, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, United Stock Exchange, the MCX-SX closed at 45.5450, 45.5475 and 45.5350, respectively. Total traded volume on the three exchanges was about $5.5 billion.