MUMBAI: Unabated foreign fund selling in the domestic market and the strength of the dollar against some major currencies took a heavy toll on the rupee on Wednesday. The Indian currency weakened to a record intraday low of 78.39 to the dollar and closed just a tad off that level at 78.38, still 30 paise lower. At the same time, led by strong selling in RIL, the sensex lost 710 points to close at 51,823 as investors turned cautious ahead of the US Federal Reserve chief’s testimony to the Congress later in the evening.
Like in the last few weeks, the day’s selling on Dalal Street was again led by foreign funds, which are continuing to be in a risk-off mode, taking money off the table from emerging markets. These include stocks in India, market players said. So far in June, foreign portfolio investors (FPIs) have net sold stocks worth more than Rs 44,000 crore – the biggest monthly figure since March 2020, CDSL data showed.
Wednesday’s selling also left investors poorer by Rs 3.4 lakh crore with the BSE’s market capitalisation at Rs 240.4 lakh crore. According to Religare Broking’s Sugandha Sachdeva, the rupee slumped to a new record low amid unabated foreign fund outflows witnessed from domestic equities and renewed strength in the greenback.
During the day, the forward premium on rupee, which reflects interest rate differentials between India and US markets, had fallen. A low forward premium is not good for the spot exchange rate as it presents an opportunity to those betting against the currency. “The decline in forward premia is because money market rates in the US have soared. This is purely because of the narrowing gap between Indian and US interest rates and does not mean that demand for dollar has declined in the forward market,” said K N Dey of United Financial Consultants.
In the offshore non-deliverable forward (NDF) market, where participants could bet on the rupee without it changing hands, the rupee had weakened to 78.4, indicating some FPI activity. But it firmed up to 78.25 late evening after market hours in India. “I expect the rupee to regain 77 levels in coming weeks,” said Dey.
Stock market players could take some solace from the US Fed chief’s statement to the Congress in which he didn’t give much more than what the central bank has been saying lately. After his statement, the US markets, which had opened deep in the red, recovered the losses to trade with marginal gains. “The short-lived pull-back rally displays the level of uncertainty in the market,” said Geojit Financial Services’s Vinod Nair.