Rupee and Sensex impacted by Dollar / Credit concerns

Indian shares halted in their tracks and slipped on renewed worries about a credit crunch, as European shares fell after France's BNP Paribas (OOTC:BPRBF) froze three of its funds investing in asset-backed securities.

The Bombay (OTCBB:BBAO) Stock Exchange's benchmark Sensex closed 1.36 pct, or 207.83 points lower, at 15,100.15. It had surged by as many as 234.42 points in the morning to a high of 15,542.40 points.

The National Stock Exchange's S&P CNX Nifty tumbled 1.32 pct, to 4,403.20 points.

Among the BSE 30, seven shares gained and 23 lost. In the broader market, 1,011 advanced, 1,611 declined and 48 remained unchanged.

Shares across the board were caught in the sell-off that afflicted the domestic exchanges in the later part of today's trading session.

Sensex heavyweights Infosys Technologies Ltd (NASDAQ:INFY) and Reliance Industries Ltd, which had risen at the start, slipped as worries about the global credit crunch resurfaced.

Shares from the software pack also eased as the rupee appreciated against the US dollar, the new curbs on external commercial borrowing notwithstanding.

Software bellwether Infosys was down 1.61 pct to 1,935.90 rupees, Tata Consultancy Services Ltd (OOTC:TACSF) fell 0.62 pct to 1,146.50 rupees and Satyam Computer Services Ltd (NYSE:SAY) lost 2.55 pct to 467.10 rupees.

Reliance Industries, which had traded firm on reports the company was exploring refining opportunities in Guatemala, closed 1.79 pct lower at 1,842 rupees.

Power equipment maker Bharat Heavy Electricals Ltd (OOTC:BHHEF) , which had surged to a high of 1,786 rupees a share on an order win, pared gains to close just 1.21 pct higher at 1,733.05 rupees.

Banking shares, which had a good run yesterday and during early trading today, fell on profit-taking.

HDFC Bank (NYSE:HDB) fell 1.41 pct to 1,155.40 rupees, and State Bank of India slipped 3.30 pct to 1,649.60 rupees.

Copyright AFX News Limited 2007. All rights reserved.

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.
India's rupee fell the most in more than a week on concern capital inflows from abroad will slow after the government imposed curbs on overseas borrowings by domestic companies.

The finance ministry yesterday said companies borrowing more than $20 million overseas can't repatriate the proceeds, while they need the central bank's permission to bring back funds up to $20 million. India is concerned the rupee's rally to a nine-year high will hurt exporters and growth.

``The political will to allow the rupee to gain beyond 40 in the very near term is missing,'' said Rajeev Malik, a Singapore-based economist at JPMorgan Chase & Co. in a research note today. ``Especially with exporters screaming after the unexpected and outsized appreciation.''

The rupee fell 0.3 percent to 40.5275 against the dollar at the 5 p.m. close of trading in Mumbai, according to data compiled by Bloomberg. The currency is up 9.2 percent this year.

Capital inflows, including overseas borrowings by Indian companies, have risen to a record this year as Asia's fourth- biggest economy expanded at the fastest pace in almost two decades. Net borrowings overseas climbed almost sixfold to $16.1 billion in the year ended March 31, prompting the government to curtail the flows.

The rupee pared losses on speculation some exporters sold dollars, taking advantage of the currency's fall to the lowest in more than a month. The currency fell 1 percent to 40.83 a dollar earlier in the day.
The Reserve Bank of India will cap rupee gains more aggressively after the currency's rally to a nine-year high curbed export earnings, according to N.S. Paramsivam, the head of treasury at Essar Group, which owns oil, steel and shipping businesses.

The central bank, which has slowed inflation to near a 13-month low by raising interest rates, may shift its focus to stopping the currency from gaining beyond 40.20 per dollar in the next month, Paramsivam said. The rupee reached 40.215 to the dollar on July 24, the highest since May 1998, eroding the value of overseas shipments that account for about a third of the economy.

"With inflation fairly under control, they're looking to intervene in the market more aggressively," said Paramsivam, who oversees foreign exchange operations at the Mumbai company. "They will now care more about growth and protect the competitiveness of exporters."

Growth in exports slowed to 13 percent in the six months through June, from 21 percent a year earlier, trade ministry data show. The top four Indian software exporters last month said that the rising rupee was curbing earnings.

The rupee traded at 40.575 against the dollar Wednesday. It has climbed 9.1 percent this year.
"The rupee appreciation has impacted exports," India's trade minister, Kamal Nath, said Tuesday. "We will be looking at measures to arrest" any slowdown in export growth.

Foreign exchange reserves grew by $12 billion in the four weeks through July 27, twice as fast as in June, suggesting that the central bank had stepped up dollar purchases. Yaga Venugopal Reddy, the governor of the Reserve Bank of India, announced measures last week to reduce cash in the banking system, allowing it to accumulate more rupees that it can sell to stem gains.

Inflation has been below the central bank's 5 percent target for the past two months. Reddy refrained from raising the key interest rate on July 31 at the most recent policymaking meeting after increasing it seven times since October 2005, because higher rates may cause the rupee to appreciate.

The Indian economy expanded 9.4 percent in the year ended March 31, the fastest pace in almost two decades, attracting global funds and companies. Net purchases of Indian shares by overseas investors this year reached $10 billion, exceeding all of 2006, data provided by the Securities and Exchange Board of India show.

"The crucial question is for how long will these inflows last," Paramsivam said. He said that he expected the rupee to decline in coming months but did not provide figures.

The finance ministry told local companies Tuesday that they would not be allowed to repatriate more than $20 million of funds borrowed abroad, curbing inflows. Net overseas borrowings by companies climbed almost six-fold to $16.1 billion in the year through March, central bank data show.

But Robert Prior-Wandesforde, an economist at HSBC, said that the rupee might keep appreciating because India will not be able to stem both currency gains and inflation without introducing new capital controls. New Delhi has not taken steps to discourage foreign direct investment or inflows into local stocks.

An economic theory known as the "impossible trinity" argues that it is not possible to have free movement of capital, a fixed exchange rate and an independent monetary policy at the same time.

"The authorities have effectively drawn the metaphorical line in the sand," Prior-Wandesforde said in a research note issued Wednesday. "The government and the central bank are fighting a losing battle."

The Reserve Bank, while acknowledging the challenges posed by intervention, may also be concerned about workers losing jobs at exporters of textiles, apparel, leather goods and gems and jewelry. The Federation of Indian Export Organizations, a lobby group, said in June that as many as 8 million workers stand to lose jobs because the stronger rupee has cost exporters orders.

"Given the fact that more people are in the goods sector, the human aspects of exchange-rate management shouldn't be lost sight of," the central bank's deputy governor, Rakesh Mohan, said in a speech in June. "We are not just looking at margins of software companies getting squeezed, but also the real threat of poor workers losing jobs."
Window of Opportunity

``They saw a window of opportunity there as soon as the rupee fell,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai.

The rupee also pared losses after the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, advanced the most in more than four months, spurring optimism that investor demand for emerging market assets will increase.

Economic growth at 9.4 percent in the year ended March 31 and ensuing fund flows pushed the rupee last month to the highest since May 1998.

The central bank may still cap gains to the exchange rate after its rally to a nine-year high curbed export earnings, said N.S. Paramsivam, head of treasury at Mumbai-based Essar Group, which owns oil, steel and shipping businesses.

The Reserve Bank of India, which has slowed inflation to near a 13-month low by raising interest rates, may shift focus to stopping the currency from gaining beyond 40.20 per dollar in the next month, said Paramsivam. The rupee reached 40.215 on July 24, the highest since May 1998, eroding the value of exports, which account for about a third of the economy.

``With inflation fairly under control, they're looking to intervene in the market more aggressively,'' said Paramsivam, who oversees foreign-exchange operations at the Mumbai-based group. ``They will now care more about growth and protect the competitiveness of exporters.''
Rupee / US Dollar Forex Currency News, Gold in India, and The Sensex index on the Bombay Stock Exchange (BSE).
India's rupee fell for the second day on speculation overseas investors reduced local equity holdings after the benchmark stock index reversed an advance.

Concerns that the impact of U.S. subprime mortgage losses may be spreading prompted overseas funds to pull back some of their investments in Indian equities. Overseas funds' purchases of stocks this year have exceeded those for the whole of 2006 as the government spends more on infrastructure to lift growth.

``The stock market development has dented the outlook on the rupee,'' said Vikas Babu, a trader with state-owned Andhra Bank Ltd. in Mumbai. ``The rupee will be under pressure now.''

The rupee fell to 40.5425 against the dollar at the 5 p.m. close in Mumbai, from 40.5275 yesterday, according to data compiled by Bloomberg. The currency rose to as high as 40.3913. The benchmark stock index dropped 1.4 percent after rising as much as 1.5 percent.

Global fund managers have sold $617 million of Indian equities more than they bought this month through Aug. 7, according to the stock market regulator. They net bought $4.53 billion worth of stocks in July.

The local currency also fell on speculation the central bank will buy dollars.

Bond Sale Limit

The Reserve Bank of India raised the limit on the sale of so-called market stabilization bonds, used to drain surplus cash, for the third time this fiscal year. That suggests it may buy dollars and simultaneously drain the rupees it injects in the banking system by selling stabilization bonds, to prevent inflation from quickening.

``The central bank's move suggests it doesn't intend to let the rupee appreciate and help exporters,'' said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai. ``It has leveraged itself for interventions. That will avoid investors from building speculative rupee positions and help the dollar.''

The central bank may drain as much as 1.5 trillion rupees ($37 billion) in the year through March 31, it said yesterday after the close of trading in the currency market. It had raised the limit on April 27 to 1.1 trillion rupees.

India's exports of goods, which account for about 12 percent of the nation's $854 billion economy, grew 14 percent in June, the slowest pace in three months. That was probably because the rupee gained 9.2 percent this year, making it the best performer in Asia. Euro / Rupee and Yen / Rupee.