The forex market witnessed volatile trading, moving almost in synchronisation with the equity market fluctuations. The market, which was bullish on the rupee due to heavy dollar inflows that were causing sharp appreciation, has since Wednesday begun to look like one that was starved of the currency.
Four factors were responsible for the sudden twist in the sentiment: A sudden spurt in dollar demand by foreign institutional investors, corporate speculation on the dollar, short-covering of the greenback and importer demand.
The rupee, as a result, remained volatile on Thursday, moving up and down in tandem with the wild swings of the stock market. Opening the day stronger at 39.47 to the dollar from its previous close of 39.56, the rupee appreciated to high of 39.40 before closing the day at 39.78.
??The stock market opened higher and so did the rupee but it began losing when the equity markets crumbled by over 900 points,?? said a dealer at a private bank.
The rupee touched the day?s low of 39.82 a dollar. Dealers said corporates and banks that had short-sold positions earlier in the day began buying dollars no sooner the equity markets started to dip.
Importers too joined the bandwagon and bought dollars fearing the continuance of an appreciating dollar trend. There were general fears that foreign institutional investors could continue making heavy dollar purchases on Friday in a bid to repatriate the profits they book on their equity sales. FIIs, as of Wednesday, sold Rs 1,777 crore worth of equities and another Rs 215 crore of debts the Securities Exchange Board of India announced on its website. The selling, according to market dealers, were on concerns that the new investment rules for hedge funds likely to come up sometime next week are aimed at reducing massive capital inflows.
The rupee is expected to remain weak on Friday and open around the day?s closing level of 39.78. “Unless we have another statement coming from the finance minister to sober down the market, the rupee is seen weak on Friday,?? said a chief treasurer at a government bank.
