The rupee rounded off the worst month since May 2006 as global funds pared emerging-market assets, selling a record amount of Indian shares. The currency declined 1.5% from a nine-year high reached on July 24 as overseas portfolio managers sold $1.8 billion more of Indian stocks than they bought this month. Record purchases in July made the rupee Asia?s best performer this year. ?We recommend investors to stay short on the rupee,?? said Vikas Agarwal, a currency strategist at JPMorgan Chase & Co. in Mumbai.
?We?ve already seen outflows and with the situation still fluid, the risk of further large liquidation is real.?? A short position is a bet on a currency declining. The rupee fell 1.3% this month to 40.88 against the dollar at the 5 pm close of trading in Mumbai, according to data compiled by Bloomberg. It may weaken to 42 by year-end, Agarwal said. The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, ended a five-month rally as subprime mortgage losses in the US spread to global credit markets, prompting investors to raise cash. The rupee pared losses as India?s economic growth accelerated to 9.3% in the quarter ended June 30 from a year earlier, the Central Statistical Organisation said on Friday, a pace faster than the median 9% forecast by 18 economists in a Bloomberg survey. Economic expansion averaged 8.6% in the last four years, a record.
Foreign direct investment into India more than doubled to $19.5 billion in the year ended March 31, the Reserve Bank of India said on Thursday. Capital flows into the stock market reached a net $5.9 billion in July, a record, according to the Securities & Exchange Board of India.10-year bonds rose, ending a three-day decline, on speculation that the government report on Friday will show inflation slowed to the least in 16 months.
The securities headed for a second weekly gain as the report may show the inflation rate fell below 4%, the government?s target, for the first time since April 2006. Bonds also gained on optimism increased lending to the Reserve Bank of India signals banks have more spare cash to buy government debt.
?Bonds have gained on expectations that Friday?s report will show inflation falling below a crucial level,?? said MA Sardesai, head of treasury at state-owned Bank of Maharashtra Ltd in Mumbai.