Four consecutive days of rupee fall, triggered heavy selling in index stocks that pushed the benchmark stock indices to 11-month lows on Wednesday. The rupee touched yet another low of 64.53 to the dollar, in line with the fall in emerging markets currencies.
After a strong start on the back of measures announced by the RBI, bears were back in control in the afternoon trading session hammering the Sensex and the Nifty, as the rupee lost its way. Bank stocks, which surged sharply in the opening session, failed to sustain the gains. However, most of them ended in the green with small gains.
Hitting a new low for the fourth consecutive working day, the rupee closed at 64.02 against the dollar due to demand from importers and persistent capital outflows.
The BSE Sensex closed at 17,906, down 340 points or 1.86 per cent, while the Nifty ended at 5,302, down 99 points or 1.83 per cent.
“The fall was led by selling in index heavy weights like L&T, Reliance, Infosys and ITC. This coincided with further weakness in the rupee as it touched a fresh low of 64.53 against the dollar. The market is now awaiting the Fed meeting notes for fresh clues on when the (US) central bank plans to taper its monthly bond purchases,” Sanjeev Zarbade, Vice-President-Private Client Group Research, Kotak Securities, said.
The Indian currency had opened weaker at 63.45 from Tuesday’s close of 63.23 as foreign investors continued to sell in the Indian equity markets.
Deutsche Bank said it expected the rupee to fall to 70 to the dollar in a month.
“Heavy demand for the American currency weighed on the rupee. However, intervention by the Reserve Bank of India by asking banks to sell dollars limited the fall,” said a forex dealer with a public sector bank.
Foreign institutional investors sold Rs 792 crore worth of shares.
Sudip Bandopadhyay, MD and CEO, Destimoney Securities, added: “The debt markets are in a much worse condition than the equity markets. Strong measures are needed to arrest the rupee’s fall, else the condition of the markets may continue to deteriorate.”
Losing further ground, the rupee today hit a fresh low against the British pound to breach the Rs 101-level in afternoon trade.
The rupee had crossed the Rs 100-level for the first time ever against the pound in intra-day trade on Tuesday.
On the other hand, with the RBI announcing liquidity easing measures late on Tuesday, bond yields recovered to 8.47 per cent (bond prices ended higher at Rs 91.79 from the previous close of Rs 86.78). The yields had closed at 8.90 per cent on Tuesday after it touched 9.48 per cent.
Shubhada Rao, Chief Economist, YES Bank said, “The domestic concerns are hyped and sometimes in the wake of negatives we tend to miss out on the positive news. The June and July period was a turning point for exports. Also, the $11-billion fund inflow promised by the Finance Minister through the NRI deposits and quasi-sovereign bonds, among others, are yet to come into effect. This should support the rupee.”