Indian rupee moving closer to all-time lows on FPI sell-off

By: |
Mumbai | Published: February 26, 2016 1:15:10 AM

The Indian rupee dropped to an intra-day low of 68.785 against the dollar on Thursday, edging closer to the all-time low of 68.85 it hit in end-August 2013, before closing the session at 68.71.

Indian Rupee Vs US Dollar: The Indian currency has been under pressure with foreign portfolio investors (FPIs) continuing to pull out from the equity market . (Reuters) Indian Rupee Vs US Dollar: The Indian currency has been under pressure with foreign portfolio investors (FPIs) continuing to pull out from the equity market . (Reuters)

The Indian rupee dropped to an intra-day low of 68.785 against the dollar on Thursday, edging closer to the all-time low of 68.85 it hit in end-August 2013, before closing the session at 68.71. Currency dealers said the central bank had intervened in the market. The rupee hit its all-time low following the contagion in August 2013 after the US Federal Reserve said it would consider tapering its bond purchase programme. Equities too were under pressure and the Sensex slipped below the 23,000-point mark, losing 0.49% to close at 22,976. The broader Nifty dropped below 7,000, giving up 0.69% to close at 6,970.60 points, the lowest close since early May 2014.

The rupee has been under pressure with foreign portfolio investors (FPIs) continuing to pull out from the equity market — in 2016 they have sold close to $2.4 billion worth of stocks. Moreover, in the last four sessions, FPIs have sold bonds worth $770.5 million, data from Bloomberg showed.

Jayesh Mehta, MD and country treasurer, Bank of America, pointed out that the sell-off in the bond markets is more noticeable because fresh inflows have dried up. “This sell-off appears more prominent as the fresh inflows have stagnated. Old buyers are still sitting on losses as the currency has depreciated due to global reasons while bond yields have not come off due to the lack of sufficient permanent liquidity in the local system,” Mehta indicated.

MV Srinivasan, vice-president, south operations at Mecklai Financial Services, said that the Indian currency’s depreciation on Thursday was led by FPI outflows, possibly sales in the debt market. “The central bank seems to have intervened today at 68.74 levels to the dollar. However, the intervention has not been very aggressive because of which the currency has stayed at lower levels during the day,” Srinivasan said.

Meanwhile, the onshore forwards are also at levels comparable with the lows of late August 2013 with the one-month forward hitting 69.15 level and the three-month forward hitting 69.98 on Thursday. The rupee non-deliverable forward (NDF) market has also seen momentum with the one-month NDF trending at 69.28 and the three-month NDF touching 70 levels as on Thursday evening.

The yield on the 10-year benchmark government bonds closed five basis points up at 7.86% on Thursday even as the old benchmark G-sec continues to remain above the 8% mark, according to data from the NDS-OM platform of the Reserve Bank of India.

While a shortage of liquidity has been cause for concern over the last few weeks due to a combination of demand-supply mismatch in debt securities, the RBI on Thursday announced Rs 12,000 crore of open market operations (OMO).

“The market is not expecting a cooling-off of yields in the near term with additional supply of government securities set to hit the market and no signs of any open market operation purchases by the central bank. As a result, foreign investors want to keep away from putting in fresh funds in this rising yield trajectory,” said a banker on condition of anonymity.

Gr3

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