Rupee Hits New Record Low, Stocks Tumble Amid Weak Global Cues

Indian stocks, currency, and bonds sold off sharply today in response to a tough global landscape where oil prices and interest rates are at multi-year highs and interest in emerging market assets is on the decline.

The Indian rupee hit a record low of 73.73 against the U.S. dollar soon after it opened for trade. This, despite the fact that the Reserve Bank of India announced liberalised overseas borrowing norms for oil companies intended to ease the pressure on the currency. The rupee is down close to 13 percent for the year, exceeding the quantum of losses seen in 2013 when the taper tantrum hit emerging market economies perceived to be weak.

In the bond markets, the yield on the benchmark 10-year bond jumped to 8.20 percent — the highest in three weeks.

Indian equity benchmarks fell to their lowest level in over three months. The S&P BSE Sensex ended 2.24 percent lower at 35,169.16 and the NSE Nifty 50 Index declined 2.39 percent to 10,599.25.

The selling pressure on Thursday was global in nature. Overnight, the benchmark U.S. 10-year bond yield spiked to 3.18 percent. The U.S. Dollar Index rose to 96.11 and Brent crude prices hit $86 a barrel.

None of this bodes well for India.

Higher crude prices prices will push India’s current account deficit towards an unsustainable level of 3 percent of GDP. This, in a year when capital flows have dried up. Foreign investors have sold a net of Rs 66,000 crore across Indian debt and equity markets.

A stronger dollar and higher U.S. interest rates could lead to more rapid outflows, unless India raises interest rates to increase the attractiveness of its domestic debt assets.

Against this backdrop, India’s Monetary Policy Committee will announce its latest policy decision on Friday. Most analysts expect at least a 25 basis points hike. Some see the possibility of a reversal of the MPC’s neutral stance as well.

“We expect the Reserve Bank of India to raise rates by 25 basis points at the October policy review and change its stance to reveal a tightening bias. However, this is likely to be accompanied by continuing OMOs (open market operations) to ensure inter-bank liquidity stays neutral,” Sajjid Chinoy, chief India economist at JPMorgan, said in a note on Thursday.

Here’s what other experts had to say about the rupee depreciation:

‘Rising Oil, Falling Rupee A Dangerous Combination’

The rising crude oil prices and the depreciating rupee is a dangerous combination for Indian equities, Dalton Capital Advisors’ UR Bhat said. “The combination is taking a toll. As long as there is no improvement in at least any of these fronts, don’t expect markets to recover.”

‘Crude Oil Rally, RBI’s Hawkish Stance Driving Selloff’

A fear of crude spiking further, the RBI moving to a hawkish stance to anticipate any inflationary pressures from crude spikes and the general liquidity issues in the domestic market are driving the selloff, according to Ajay Bagga, executive chairman at OPC Asset Solutions.

“Some recovery, however, is possible once earnings season starts but it is time to stay on the sidelines, not a time to do bottom-fishing or for intraday trading,” Bagga said.

‘Foreign Investors Exit On Rupee Threat’

“Foreign investors’ exit is driven by the threat of rupee depreciating further and to protect their portfolios from currency loss (MTM). They are taking out funds from Indian markets and paying of losses they have incurred in other markets,” Deven Choksey, managing director at KR Choksey Securities, said.

‘Market Selloff A Value Buying Opportunity’

We are seeing a good value emerging in the market at the stock-specific level in the broader market, except for the Nifty, Mahesh Patil, co-chief investment officer of Birla Sun Life Mutual Fund told BloombergQuint in an interaction.

“This is a good opportunity for money managers to identify the stock because this kind of correction award opportunities to get good companies at a reasonable or attractive valuation,” Patil said.