The currency weakened as data provided by the capital markets regulator showed funds based abroad sold shares worth $3 billion more than they bought from January 1 through January 28, a record for a month. The rupee also declined on speculation Reliance Power Ltd, which got more than 72 times the $3 billion on offer at its share sale earlier this month, is refunding surplus bids from overseas investors.
Rupee appreciation appears to have been halted for now because of capital outflows from the stock market, said Agam Gupta, head of trading at Standard Chartered Plc in Mumbai. We can expect more outflows as Reliance Power continues to refund excess subscriptions.
The rupee fell to 39.3925 per dollar in Mumbai, from 39.3825 on Tuesday, according to data compiled by Bloomberg. It fell as low as 39.445 earlier. It may trade between 39.30 and 39.60 in coming weeks, Gupta said.
Reliance Power, a unit of Indias second-largest utility by market value, held the nations biggest initial share sale from January 15 to 18 to raise Rs 11,700 crore .
The Sensex, dropped 1.8% today. The index lost 11.8 percent in the last two weeks, the most in such a period since May 2006. Global equities lost as much as $7.6 trillion in market value this month.
The RBI held its benchmark interest rate at a near six-year high of 7.75% on Tuesday.
The world economy will grow 3.6% in 2008, down from an earlier forecast of 4.3% as the US slips into a recession in the first half of the year, UBS AG said January 25.
Bonds fell for the fourth day, the longest losing streak in more than two months, on speculation the central bank will keep interest rates on hold as it deems inflation to be a bigger concern than slowing growth.
The benchmark bond yield rose to the highest in almost three weeks after the RBI on Tuesday refrained from cutting the benchmark rate, saying oil and food prices may reignite inflation. The central bank will hold the repurchase rate at 7.75% on April 29 when it meets again, six of nine economists surveyed by Bloomberg News said.