Rupee down as funds sell stocks

India’s rupee completed a monthly loss as overseas funds dumped stocks on concerns that the global economic slump will hurt growth and erode earnings.

The currency extended last year’s 19 percent slide, the steepest since 1991, as the Reserve Bank of India this week lowered the growth forecast to 7 percent for the year ending March 31, the slowest in six years. The next fiscal year will be “more difficult,” Governor Duvvuri Subbarao said on January 27. The benchmark stock index slumped 2.3 percent this month as equity sales by foreigners exceeded purchases by $1.1 billion. “Investors aren’t entirely convinced that the concerns over growth have subsided, which is why assets aren’t getting support,” said Ritwij Mahanta, a trader at IndusInd Bank in Mumbai. “The fundamentals appear weak for now and that will be reflected on the rupee in the near term.”

The rupee declined to Rs 48.875 per dollar from Rs 48.775 on December 31, according to data compiled by Bloomberg. It may drop to Rs 49.25 in a week, Mahanta said. Nine of the 10 most-active Asian currencies outside of Japan weakened this month. Suzlon Energy, India’s biggest maker of wind-turbine generators, unexpectedly reported a loss of Rs 58.9 crore ($12.1 million) in the three months ended December 31 compared with a profit of Rs 152 crore a year earlier.

Maruti Suzuki India, which makes half the cars sold in India, yesterday reported the smallest quarterly profit in more than four years. Vehicle sales dropped 14 percent in the three months through December, the unit of Suzuki Motor Corp. said.

Falling volatility
The rupee gained 0.2 percent today as local shares climbed as the Bombay Stock Exchange Sensitive Index added 2 percent. Implied volatility on one-month dollar-rupee options fell to 11 percent today, the lowest since September 1, Bloomberg data show. The measure of exchange-rate fluctuations touched 33 percent on October 27, the highest in at least nine years. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of option prices.

Non-deliverable forward contracts showed traders pared bets for further weakness in the rupee. Offshore contracts indicate the rupee may trade at Rs 49.05 to the dollar in a month, compared with expectations for Rs 49.61 a week ago. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

The author is a Bloomberg News columnist. The opinions expressed are his own