Rupee at over 66 against dollar, Sensex rallies over 300 points

The Standard and Poor Bombay Stock Exchange Sensex recouped from early morning losses and rallied to over 300 points on Wednesday, led by gains in Infosys, Reliance Industries and TCS.

The BSE Sensex had earlier opened in the negative zone, led by gains in InfosysBSE 2.56 %, Reliance IndustriesBSE 3.55 % and TCSBSE 2.50 %.

However, the rupee extended its fall following increased demand for the US dollar after the US President Barack Obama secured conditional support for a strike on Syria from one of his fiercest critics.

The partial convertible rupee was 66.48, down 85 paise, against its previous close. It needs to be seen how the Indian currency behaves after internationally renowned economist Raghuram Rajan takes over as Reserve Bank of India (RBI) Governor today.

At 10:30 a.m.; the 30-share index was at 18,512.2, up 277.54 points or 1.52 per cent. It touched a high of 18,536.75 and a low of 18,188.43 in trade today.

The Nifty was at 5,425.15, up 83.70 points or 1.57 per cent. It touched a high of 5,432.25 and a low of 5,318.90 in trade today.

The medium term outlook also remains positive because the Nifty has retraced 61.8 percent of the previous rally from 4770 to 6229, the Economic Times reported.

Earlier, the rupee slid towards a record low of 68.62 against the dollar, providing Rajan with a test of fire as he takes over in the middle of a slump in confidence in the economy and its currency.

Rajan enters office as the economy struggles with decade-low growth, a record current account deficit and a steep fiscal shortfall.

India's economy is reeling mainly from a dearth of investment and a slowdown in manufacturing activity and consumer demand.

Several banks, including Goldman Sachs this week, have cut their GDP growth forecasts to well below the decade low of five per cent for the year ended in March.

Traders say the economy is being further hit by the extraordinary measures from the RBI under outgoing Governor Duvvuri Subbarao, which chose to drain cash and raise short-term interest rates in a bid to defend the rupee.

The big question is whether Rajan, who most recently was an advisor at the Finance Ministry, will take the helm of the RBI with a whisper or a bang, and whether he will dismantle any of the mishmash of current central bank measures.

Investors are showing little faith the government can push through substantial reforms, such as a hike in subsidised fuel prices, which could help revive confidence in the economy.

Prime Minister Manmohan Singh, in a statement ahead of a trip to Russia to attend the Group of 20 nations' summit on Thursday and Friday, said India would also need a more stable global environment.

"The Summit comes at a time when we in India have introduced several reform measures and taken steps to strengthen macro-economic stability, stabilise the rupee and create a more investor friendly environment," Singh said.

"At the same time, a stable and supportive external economic environment is also required to revive economic growth.

Global markets are weakening after leaders of a US Senate panel said they reached an agreement on Tuesday on a draft authorisation for the use of military force in Syria, paving the way for a vote by the committee on Wednesday.

Worryingly for India, global crude and gold prices are surging. Oil and gold are the country's two biggest imports, and are a big factor behind the wide current account deficit that is putting pressure on the rupee.

The prospect that the Federal Reserve will unveil a plan after its policy meeting on September 17-18 to start winding down its monetary stimulus is also weighing on emerging markets, but India has fared worse than most because of the lack of confidence it can address its precarious deficits.