It recovered to close at 58.39/40 per dollar against 58.15/16

Breaking all barriers, the rupee fell to an all-time low of 58.98 per dollar intra-day on Tuesday at the foreign exchange market. . However, dollar selling by public sector banks and exporters prevented the Indian currency from dipping below the 59 per dollar mark.

The rupee recovered to close at 58.39/40 per dollar compared to its previous close of 58.15/16.

``Re-surfacing of concerns on widening trade and current account deficit (CAD) has lead to a sharp fall in the rupee,” said Ajay Bodke, Head of Investment Strategy & Advisory at Prabhudas Lilladher.

“Dollar is continuing to strengthen against other currencies due to the belief that the U.S. economy is on the firmest footing among developed markets. This has rekindled concerns about tapering of bond purchases by the U.S. Fed sooner rather than later, potentially impacting FII flows to emerging markets,” said Mr. Bodke.

With India’s massive dependence on fickle FII flows to bridge its large CAD, India remained particularly vulnerable to this potential development, he added.

“In June itself, in few short days, the Indian rupee has depreciated over 4 per cent against the dollar, and more so against the other currencies such as Euro and Pound,” said Anindya Banerjee, Currency Analyst, Kotak Securities.

“Fear of QE (quantitative easing) unwinding by the U.S. central bank and overly short positioning in dollar could have been the reason behind the movement of rupee. A weak rupee does not augur well for corporates who have un-hedged foreign currency loans or large concentration of net imports,” said Mr. Banerjee.

However, he said that ``over the near-term, we could see a range bound action in rupee / dollar between 57.50 and 59.00, as recent spate of depreciation has been too fast, and a consolidation is warranted ahead of the U.S. Fed meeting on June 19.”

Stocks close lower

A weak rupee and also a strong yen have triggered a sell-off in the domestic equity market.

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) lost 298.07 points or 1.53 per cent. The midcap and smallcap stocks lost 1.60 per cent and 1.82 per cent, respectively.

The fall was led by consumer durables, which tumbled by 6.36 per cent, followed by metals 4.13 per cent, realty 3.68 per cent, banks 2.24 per cent, power 2.07 per cent and PSUs 2.04 per cent. All sectoral indices ended in the negative territory.

A broader National Stock Exchange (NSE) Nifty ended at 5788.80 with a fall of 89.20 or 1.52 per cent.

Other broader indices too were down. BSE 100 lost 1.56 per cent. BSE 200 and BSE 500 lost 1.59 per cent each.

“Markets were weak largely because of the weakness in rupee and also the weak opening of European markets. We expect normal monsoons further to which fiscal reforms from Government of India on the core sector will provide support to the markets going ahead,” said Mr. Banerjee.

“The rupee’s sudden depreciation has led to some outflows and correction in the equity markets as well. The fact, however, is that in the past few months India’s fundamentals have improved, with inflation declining from 8-9 per cent in the last few years to about 5 per cent levels,” said Lalit Thakkar MD- Institution , Angel Broking.

“Because of temporary surge in gold buying as well as global jitters regarding QE, markets have not yet factored in the domestic positives,” said Mr. Thakkar. “In my view, in the coming weeks the market is likely to reverse its losses,” he added.

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