The Indian rupee slipped on Friday as a sell-off in the Sensex

The Indian rupee slipped on Friday as a sell-off in Asian stocks caused by global risk aversion spurred investors to pare rupee holdings, though dealers said the local unit was supported by exporters repatriating profits.

The rupee was at 40.64/65 per dollar, weaker than Thursday’s 40.53/54. It hit a nine-year high of 40.20 in late July.

“After a long bull run for the rupee, the market is genuinely edgy at the moment, with sentiment hit,” said the chief dealer with a private bank, who expects the rupee to trade in a 40.60-40.75 range on Friday. “All eyes are on the stock market at the moment,” the dealer added.
As India celebrates 60 years of independence on Wednesday, what of the investors who tip-toed into the fast-developing country's stock market? India funds run by Fidelity F&C, Aberdeen and JP Morgan Fleming have, over the past three years, produced annualised returns of around 35%-50%, defying the sceptics who have long predicted a meltdown on the Mumbai market.

Despite a series of interest rate hikes to head off rising inflation, economic growth in India has remained robust. In the current financial year, the economy is expected to expand by a frenetic 9.4%, the second highest in the world after China.

Foreign fund buying in local shares has been a key support for the rupee, which has risen nearly nine percent this year.

Still, local traders said the rupee was bolstered by exporters who sold overseas dollar holdings, as they considered the current levels attractive after the rupee’s recent gains.
"Any time there is a sudden spike ...in terms of appreciation, which you can address through all these mechanisms (hedging). If you go by July and August, it is not a desperate situation," S Ramadorai told reporters.
Earlier this year, Goldman Sachs raised its forecast for India's sustainable rate of economic growth from 5.7% to 8% a year - and said it is likely to continue at this pace to 2020.

By 2050 it says the US economy will have fallen to third place in the world pecking order - eclipsed first by China and then by India.

GOLD remains the hedge for the future

A country once known as a byword for poverty, malnutrition and stagnation has a new set of icons; Bangalore's software industry, Hyderabad's "Cyberabad", Mumbai's skyscrapers and Bollywood's stars.

In 2000 there were just 3m mobile phones in India. Today the country is adding 6m new subscribers every month - a rate of growth that beats even China.

But behind the gleaming shopping malls and the surging middle-class, there remains colossal deprivation. Around 300 million Indians survive on less than 50p a day and nearly three million children die every year from malnutrition.

Even the better-off can't insulate themselves from the country's growing pains; during 45°c heatwaves, the Indian capital Delhi can be hit by power cuts lasting up to 12 hours a day.

For fund manager Sam Mahtani, of F&C's Indian Investment Company, solving these problems is where his fund - minimum investment £2,500 - is going to make money in the future.

"There has been a marked change in government policy towards infrastructure spending. It says it is going to spend $300bn over the next five years, which compares with just $5bn-$6bn a year in the past few years." His favourite stock is Bharat Heavy Electricals (BHEL), an engineering giant which has just won a 29bn rupee (£350m) contract to build three new power plants to supply the Delhi grid.

"Under the Rajiv Ghandi programme, the government is planning to connect all India's rural areas to the grid, and BHEL will be one of the key beneficiaries," he adds. Since March, the stock has soared from 970 rupees a share to 1,730 rupees this week.

Environmentalists may baulk, though, at the company's predominantly coal-fired power stations.

Mr Mahtani also likes Grasim, a cement maker which will help cover the country in concrete over the next few decades. Since March its shares have leapt from 1,927 rupees to 3,008.

No investor in India can ignore Reliance Industries, the conglomerate that is worth 15% of the entire Mumbai market. Mr Mahtani has 18% of his fund in Reliance, and is enthusiastic about its supermarket strategy in which it intends to become the Wal-Mart of India.

What he's less keen on is the banking sector; he thinks operators such as ICICI Bank will be hurt as the credit splurge of recent years unwinds and households adjust to the recent rise in mortgage rates from 7% to 12%.

Aberdeen Asset Management runs an Indian fund with the same sort of performance figures as F&C - but what's striking is how the manager of the Aberdeen fund, Adrian Lim, has views almost the polar opposite of Mr Mahtani's.

Mr Lim has nothing in Reliance, while his biggest holding is ICICI Bank. He also remains a fan of India's software stocks, when many other investors have taken profits and sold out.

"Reliance is not cheap, and although they've done well in petrochemicals, on the back of the commodity boom, they are now going into areas such as retailing and the Special Economic Zones where they don't have much experience."

Volatility in the Indian rupee can be countered with hedging, and recent moves in the currency were not a desperate situation, the CEO of leading software services exporter Tata Consultancy Services Ltd, said on Friday. He reckons that over five years, interest rates will peg back and help ICICI grow its earnings at 20%-30% a year. This week it was trading at 900 rupees against its 1,010 high in May, but Mr Lim reckons it's a good long-term play.

Among India's software stocks, he picks Satyam, which outsources for US and European companies. But forget call centres - they're yesterday's business, even in India. Its chief source of revenue is writing software code, which enjoys much higher margins.

The rupee hit a nine-year high of 40.20 per dollar last month, squeezing margins for exporters. On Friday it was trading at 40.65/66, up about 9% this year.

The rupee's appreciation poses a major problem to software services exporters who get about 60% of their revenue from the United States.
Indian stocks fell yesterday, joining a global rout, on concern economic growth will slow as losses tied to US subprime mortgages spread.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 231.90, or 1.5%, to 14,868.25, the lowest since July 5. The index posted its third weekly decline, falling 1.8%, the longest losing streak since the five weeks ended March 16.
The S&P/CNX Nifty Index on the National Stock Exchange declined 69.85, or 1.6%, to 4,333.35. Nifty futures for August delivery slid 1.4% to 4,303.
Reliance Industries led declines. US stocks tumbled on Thursday by the most in more than five months after BNP Paribas joined Union Investment Management and Bear Stearns in stopping fund redemptions.
Benchmarks in Asia’s eight biggest markets slid as much as 2% yesterday.
“Our market is moving in line with global trends,” said Nikunj Doshi, who helps manage the equivalent of $541mn in Indian equities at Kotak Mahindra Asset Management Co in Mumbai. “There is definitely more pain left in the system; we may see fresh money flows drying up and unwinding of leveraged trades as investors salvage money from other asset classes.”
BNP Paribas halted withdrawals from funds that owned subprime, or higher risk, home loans. The funds had about 1.6bn euros ($2.2bn) of assets on August 7, after declining 20% in less than two weeks, a spokesman said.
Reliance, the nation’s most valuable company, dropped Rs31.25, or 1.7%, to Rs1,810.75. ICICI Bank, the country’s second-largest lender, fell Rs24.55, or 2.8%, to Rs865.7.
The two stocks account for more than a fifth of the Sensex’s weight.
The rupee had its biggest weekly decline in two months after the benchmark stock index slumped on concern the US subprime mortgage contagion will spread.
The rupee fell for the third day on speculation overseas investors led the stock selloff as they dumped riskier investments.
India’s currency, the best performer in Asia this year, was pushed to a nine-year high last month on foreign buying of local stocks. Overseas purchases of Indian shares already exceed those in the whole of 2006.Indian shares fell 1.54 per cent yesterday to their lowest close in more than a month - although they ended well above their lows for the day - as investors exited riskier assets on fears of a global liquidity crisis.

ICICI Bank fell 2.8pc to a three-month closing low and State Bank of India fell 2.6pc as investors turned cautious on financials on worries about contagion from the problems in the US mortgage sector.

The benchmark 30-share BSE index lost 231.90 points to end at 14,868.25, its lowest close since July 5, with 24 components falling. The index fell as much as 3.5 percent during trade to 14,570.89, its lowest level since late June.

The index lost 1.8pc on the week, its third successive weekly fall, and is now down 6.3pc from a record 15,868.85 hit on July 24.

"Although a tough trading week has finally ended, I really doubt it whether we have seen the end of the turbulence yet because the whole world is turbulent now," said Arun Kejriwal, strategist at research firm KRIS.

"The domestic fundamentals are still good, but we are in a globalised world and we had to react to the credit woes that have taken the entire world in its grip. We are seeing a trend reversal of sorts and this will continue."

Other Asian markets were also spooked yesterday - many ended down more than 2pc - and major central banks tried to soothe nerves by adding funds to money markets.

Export-driven technology stocks helped the market to trim some of its losses on a weakening of the rupee against the dollar, as the credit worries saw an unwinding of carry trades and selling high-yielding currencies such as the rupee.

Infosys Technologies, the second-largest software exporter, ended up 0.8pc at 1,952.25 rupees, and Satyam Computer Services rose 2.6pc to 479.40 rupees.

In the broader market, losers outpaced gainers 1,605 to 1,080 on a higher-than-normal volume of more than 436 million shares.

Rupee / US Dollar Forex Currency News, Gold in India, and
It’s not just the Indian exporters, especially IT firms, who are worried about the rising rupee. The sharp rise of the rupee against the dollar (over 9% in the last 4-5 months) is now causing concern to a section of employees of these companies, the coveted and much-envied bunch of expats and Indian employees paid in dollars, who are drawing a shrinking package.

For example, an American who recently joined at a CXO level position with one of the mid-sized IT firms in Bangalore says, "I joined the company about six months ago when the dollar was worth about Rs 46. Its now Rs 40, so my total salary package has shrinked if you convert it locally." Experts say that this phenomenon significantly reduces the spending capability of such expats.

Says Priya Chetty-Rajgopal of executive search firm Stanton Chase International, "Few months ago, when we were making searches for CEOs in the US for India based companies, we were giving offers of between $200,000 to $300,000. Now, we find it very difficult to offer similar packages to attract talent because of the rising rupee. We would rather negotiate in rupees now, it just makes it easier."

It’s not just expats but onsite employees of IT firms who are also slightly worried. Though they do say that it is still early, some opine that the rupee rise could put pressure on their allowances and savings.
India's government has installed new curbs on overseas borrowing by local companies to counter a surge of foreign money into the country that has fueled inflation and strengthened the rupee.

Companies will not be allowed to bring more than $20 million in overseas loans into the country, the federal finance ministry said in orders released late Tuesday. Those bringing in less than that would still need to get it approved by the central bank, it said.
>The ministry's decision is expected to help weaken the rupee and bring relief to exporters and the country's huge, profitable outsourcing industry, where earnings have been hit by the rupee's sharp appreciation in recent months.

It “cuts out a major portion of the inflows that have contributed to the rupee's strength, particularly in 2007,” Standard Chartered Bank said in a note to its clients.

Wednesday, the rupee fell 0.3 percent to 40.52 per dollar. The Indian currency has risen more than 10 percent against the dollar in the past year and reached a nine-year high of 40.20 per dollar in late July.

Indian companies borrowed about $16 billion from overseas in the fiscal year ended March. That money was on top of a record $15 billion in foreign direct investment and another $7 billion pumped into stocks and bonds, leaving the country with huge foreign exchange reserves and a banking system flush with funds.

India's foreign exchange reserves totaled $218 billion July 27, up $61 billion from a year ago, according to latest official data. Only five other countries – China, Taiwan, Japan, South Korea and Russia – have more foreign reserves than that.

The problem of surplus dollars contrasts with the past, when India had to struggle for decades with a shortage of foreign currency that stunted growth, and plunged the country into a crisis in 1991.

The restrictions announced Tuesday “will have a meaningful impact on (overseas corporate borrowing), which in turn will facilitate better handling of money market liquidity by the central bank,” said Rajeev Malik, a Singapore-based economist with JP Morgan Chase Bank.

The finance ministry's move underscores the risks that confront countries like India and China, where excess inflows of foreign money have complicated the task of fighting inflation and preventing their economies from overheating.

The inflows have pushed up prices, squeezing millions of wage earners and salaried people.

Last week, the Reserve Bank of India unveiled measures to suck surplus cash from the banking system, with the central bank's governor saying, “managing liquidity has become the most challenging task.”

The new curbs are in line with recommendations made recently by the prime minister's economic advisory council, which is concerned about the surge in foreign capital and how it has been harming the broader economy.

Last month, leading software companies that thrive on outsourcing orders from Western countries reported a sharp slowdown in quarterly profit, while one of them – Infosys Technologies Ltd. – announced a first-ever cut in its full-year earnings forecast.

Bhanu, who is working for one of the Indian IT biggies in Boston said, "Some companies are reportedly cutting down on allowances. For instance, employees are being provided with service apartments. Earlier, we got a housing allowance along with the liberty to choose our accommodation. This way, we ended up saving a considerable amount on these trips.”

Most HR heads of companies are not willing to comment on the issue. Wipro’s HR head Pratik Kumar only said, “People continue to be very observant of what’s happening around.’’

Yehasvini Ramaswamy, director-people practices, e2e business solutions said, "For corporates the focus now is on making employees more employable and enhancing global skillset. While there has been an impact on dollar salaries drawn by employees, playing the salary game is not the route corporates intend to take. Corporates are looking at development of their employees and providing them with skills for cross-geographical assignments."

Adecco India COO Sudhakar Balakrishnan, however said, "Most onsite employees have dual compensation, i.e., salary which is paid in rupees plus costs met there (allowances paid in dollars) which the companies bill to the customer. So there might not be any dip. But if the employee is being paid completely in dollar terms, his package will shrink in rupee terms."The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee.