Rupee drops as global funds cut stock holdings

The rupee dropped after global funds reduced holdings of the nation’s shares as inflation accelerated last month.

The benchmark stock index sank to a four-month low after a report of the government seeking tax gains on investments routed through Mauritius sparked a selloff.

“The outflows from the stocks is mainly driving the rupee,” said Naveen Raghuvanshi, a Mumbai-based currency trader at Development Credit Bank Ltd. “The concern on Europe’s debt crisis is definitely there, keeping the currency range-bound.”

The rupee dropped 0.3 per cent to 45.0075 per dollar at close in Mumbai, according to data compiled by Bloomberg.

India will seek to tax capital gains on investments made through Mauritius as talks on its tax treaty with the island nation resume after three years.

India has yet to start negotiations with Mauritius after the latter expressed willingness to hold talks three months ago, Shishir Jha, a spokesman for Central Board of Direct Taxes, said in New Delhi on Monday.

European governments failed to agree on releasing a loan payment to spare Greece from default, ramping up pressure on Prime Minister George Papandreou to first deliver budget cuts in the face of domestic opposition.

BONDS RISE
Government securities shot up further on sustained heavy demand from banks and companies. Abhishek Goenka, chief executive India Forex says, “Last week, the government skipped auction of three dated bonds, thereby ensuring enough demand for the existing papers”.

The 7.80 per cent government security maturing in 2021 flared up to Rs 97.37 from Rs 96.87 last Friday, while its yield dipped to 8.18 per cent from 8.27 per cent. The 8.13 per cent government security maturing in 2022 also jumped to Rs 98.82 from Rs 98.27, while its yield dropped to 8.29 per cent from 8.37 per cent.

The 8.08 per cent government security maturing in 2022 soared to Rs 98.45 from Rs 98.01, while its yield tumbled to 8.29 per cent from 8.36 per cent. The 7.83 per cent government security maturing in 2018, the 8.26 per cent maturing in 2027, the 7.59 per cent maturing in 2016 also ended further higher at Rs 97.79, Rs 97.90 and Rs 97.40.

CALL RATE IMPROVES
The call rate improved further on the overnight call money market on shotage of funds in banking system. The call money rate settled strong at 7.80 per cent from 7.50 per cent last Friday. It moved in a range of 7.80 per cent and 7.65 per cent.