Rupee ended two days of gains after data released by the stock market regulator showed overseas investors made record sales of equities last month.
The currency extended its biggest loss in 15 months on concerns about foreign-exchange outflows as investors take money out of local stocks. Overseas funds sold stocks worth $2.03 billion more than they bought in August, Securities & Exchange Board of India data show.
?Global investors’ confidence in emerging-market assets hasn’t been restored fully,” said K Raghunathan, chief currency trader at state-owned Union Bank of India Ltd in Mumbai. ?The rupee will be under pressure as capital flows won’t be as consistent as they have been in past months.? The rupee fell to 40.89 against the dollar in Mumbai, from 40.88 on August 31, according to data compiled by Bloomberg. It dropped 1.4% in August, the biggest monthly decline since May 2006.
Global funds sold Indian equities in August as they pared riskier assets amid concern losses arising from the US subprime credit crisis would slow global growth. They made net sales worth $164.4 million on August 30, the most in more than a week. Net purchases totaled a record $5.85 billion in July.
Bonds pared gains on concern government debt sales and corporate tax payments will drain money from the financial system, leaving investors with less spare cash to buy debt. India will sell bonds worth Rs 7,000 crore September 7. Companies must pay the third installment of taxes for the fiscal year by September 15.
?The market is a bit cautious, since auctions and tax outflows are lined up,” said K Ramkumar, who manages the equivalent of $1.3 billion in debt at SBI Funds Management Ltd in Mumbai.
Bonds also gained on speculation the US Federal Reserve may cut its benchmark interest rate this month, prompting the Indian central bank to refrain from raising rates.?Global factors also appear to be favorable for the bond market for now,? UTI?s Chopra said.
?A rate cut by the Fed would boost market sentiment. The European Central Bank also may have adopted a neutral stance. ?The Reserve Bank of India has increased borrowing costs nine times since October 2004 to curb inflation?.The bank, which raised its repurchase rate to a five-year high of 7.75% on March 30.