Rupee falls as importers sell currency

MARKET ROUND-UP

The rupee dropped on speculation some importers will sell, betting gains in the currency may be limited, as the benchmark stock index fell a second day this week.

A stronger currency benefits importers, including Indian Oil Corporation, the country's biggest refiner, as it cuts the cost of crude oil shipments from abroad.

The rupee last month retreated from a 16-month high on speculation the central bank stemmed its advance. Global funds sold equities as the Bombay Stock Exchange's Sensex declined 14 per cent from a record.

"There's a bit of uncertainty over dollar supplies after the stock market's fall,'' said S Ramachandran, a currency trader at Bharat Overseas Bank in Chennai.

"We're seeing some importer demand for dollars while exporters are staying away, betting the rupee will weaken further.''

The rupee fell as much as 0.2 per cent to 44.575 versus the dollar before ending the day at 44.4963 at 5 pm in Mumbai, data compiled by Bloomberg show. It may trade between 44.35 and 44.75 in the next week as some exporters may sell dollars as the currency weakens, Ramachandran said.

Exporters, including Tata Consultancy Services, the country's biggest software maker, benefit from a weaker currency when they convert their overseas earnings.

Global funds were net sellers of Indian stocks in five of the past six business days, according to the latest data provided by the Securities and Exchange Board of India. They sold $692 million more shares than they bought from February 26 through March 5, Bloomberg data show.

The rupee failed to break 44.025 last month as data provided by the central bank showed foreign-exchange reserves rose $13 billion in the three weeks through February 23. The Reserve Bank of India probably stepped up dollar purchases last month, as latest data showed it bought $5 billion in all of November and December.

India's currency yesterday advanced the most in almost four months as the Sensex rebounded, suggesting investor appetite for risk may return to emerging market assets.

"In the near term, the recovery in stocks can be beneficial to the rupee,'' said Vineet Bajpai, a currency trader at state-owned Allahabad Bank in Mumbai. "The rupee's tied to stocks at the moment, and the future course really depends on investor sentiment.''

The currency fell in the forwards market. Investors who want to sell dollars a year from now for rupees receive 2.91 per cent more than the current exchange rate, compared with 2.86 per cent yesterday.