Rupee falls against US dollar; hits fresh 2-year low

Mumbai/Nagpur: The stock market seems to be moving in just one direction, as the Sensex’s south-bound journey on the back of relentless selling pressure shaved 800 points off the index in last two days.

“Today, the Chinese markets continued their downward movement despite various measures taken by the government there”.

What will, however, be a worry is the foreign debt exposure of some of India’s bigger corporates, especially those in the infrastructure sector who have borrowed in foreign currency but have rupee revenues.

China’s central bank had devalued the yuan by two percent on August 11. The Indian rupee had fallen about 0.4 percent to about 66.5 rupees against the dollar.

Investors are still uncertain to what extent the Chinese economy could slow.

The widespread panic sell-off in Chinese equities predominantly tipped emerging market currencies into turmoil even as the US dollar weakened overseas. “Though unrelated, the stock market crash can transform into further yuan devaluation to perk up the economy”, Nevgi cautioned. Either Mr Jaitley is being misled by vested interests or he is unaware of it, though we have brought it up several times in these columns and elsewhere.

Whatever is happening in China is reflecting in India. Caixin is a barometer of factory output in the $10 trillion dollar Chinese economy.

Market players said the government’s Rs 9,300 crore offer for sale (OFS) in Indian Oil Corporation, sucked out a lot of liquidity from the market, which would otherwise have provided some buying support in the secondary market. He stated that India’s low inflation and powerful financial fundamentals would encourage confidence in buyers.

“The extended slide in oil prices has cast doubts on the chances of a Fed rate hike”. “And rate cuts are a natural effect that the RBI has no hesitancy in delivering”.

Analysts identified that the minutes of the final Federal Open Market Committee (FOMC) meet which will probably be launched later at present would be the subsequent set off for the rupee motion. “And then they will find that India is actually in a very good spot, it’s in a rather sweet spot, given the fact that all of our parameters, the macro parameters are all well”. (Source: The Wall Street Journal, last accessed August 24, 2015.) These fears are not unfounded, as the Shanghai Share Index fell by 7.7% to a five-month record low, causing both Indian and worldwide traders to rush to minimize their exposure.