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Friday, November 16, 2012

HARD DAYS Rupee, Shares Plunge on Fears of Fiscal Slippage

Rupee falls to 55.17 against dollar as tensions in the Middle East too affect market sentiment


The rupee and the shares were pummeled on Friday as investors grew sceptical about the government's ability to deliver on the fiscal promise and the conflict in the Middle East escalated, which could push up oil prices, India's Achilles' heel. Falling exports and a steady rise in imports are not helping the Indian currency either, with the demand for the US dollar remaining high. 

"It's all negative for the rupee on both the internal and external fronts," said KN Dey, director at Basix Forex, which advises companies on exchange rate movement. "Given the underlying pessimism all around, the currency could see a new low," he said. 
The local currency fell for a third straight week to end at 55.17 to the US dollar, losing 7.5% since its October peak of 51.32. The demand from oil companies, which is averaging around $750 million a day, could rise if crude oil prices were to increase due to the rising tensions between Israel and Palestinians. Nifty closed 1% down at 5574.05 while the Sensex ended 0.88% lower at 18309.37. 
"The market depth was quite low and there was some selling by FIIs in index stocks around the last half an hour, 
which pushed markets into the red," said Motilal Oswal, chairman, Motilal Oswal Financial Services. "The focus now will be on the Parliamentary session commencing next week (Thursday). My guess is markets will tread in positive territory." 
There could be dollar outflows in December if FIIs take away profit from local investments where the benchmark indices have gained the most in Asia this year. "The outlook on rupee has a weakening bias in the near term," SBI chief economist Brinda Jagirdar said. "The economic environment is very challenging as trade deficit is worrisome and first-half economic growth is expected to be soft." 
Investors worry that the government may not be able to meet its upwardly revised fiscal deficit target of 5.3% of the GDP after the 2G spectrum auction failed to get even a fourth of the forecast amount. 
"The Rupee may remain in the range between 54 and 56 in the near term," Jagirdar said. She expects the currency to gain when the reform measures start getting implemented and inflation eases. 
But for the moment, no one is ready to put a bet on the rupee. Any rise in crude prices will further put pressure on India's huge current account deficit. Trade deficit stood at a record $20.96 billion in October as exports fell 1.63% year-onyear. Current account deficit was 3.9% of


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