Concerns that the government was firm in curbing capital inflows routed by foreign institutional investors via participatory notes (PNs) continued to push down the rupee on Monday. The rupee opened weaker from Friday?s close of 39.74 at 39.92 to the dollar.
It ended the day at 39.90 to the dollar after a high of 39.76 in intraday trading. The sentiment on the rupee was backed by the feedback financial markets got from the stock market regulator Securities and Exchange Board of India (Sebi). The watchdog was of the view that the 18-month deadline was good enough for a switch over from indirect stock market investments in PNs?where investors remain anonymous?to a direct and more transparent mode.
??The rupee is likely to remain weak, as it appears that the stock market regulator and the Reserve Bank of India (RBI) are serious about reducing capital inflows through PNs,?? said a chief dealer at a private bank.
??A clearer picture is likely to emerge after October 25, when the Sebi rules are in place,?? said a dealer at a government bank.
There have been concerns that global crude prices, which have been soaring till recently, may also push up the demand for dollars and fasten the rupee?s depreciation rate, dealers said. Crude oil , at $90 on Friday, lost $5 on Monday on concerns that the slowdown of the US economy would reduce the demand for oil.
But dealers felt even at the current rate it implied that the demand for dollars by domestic importers of crude would hasten the rupee?s weakening pace.
Dealers said the market view, till the Sebi report was released, was that of a stronger rupee of around 39 levels. ??Now we are expecting the rupee to breach 40 a dollar and probably inch towards 41 in the short term,?? said a government bank dealer.
The rupee was on a gaining spree till October 16, when Sebi, after the close of markets, released its report and invited feedbacks on its proposed restrictions of stock market investments in PNs.
The rupee ended the following day at 39.57 as against the previous close of 39.36 in volatile trading. It had almost reached 40 a dollar levels at 39.97 that day?the biggest decline since August 16.