Mumbai : The rupee went into a tailspin by plunging 56 paise on Tuesday, the second biggest single-day fall of 2018, to end at a new 16-month low of 68.07 as panic dollar demand rattled currency market.
It has been in a virtual free fall for the Indian unit which settled a hairs breadth below its intra-day low of 68.15 a dollar. This is the lowest closing for the rupee since January 24, 2017 when it had ended at 68.15 against the US dollar.
A slew of domestic and external factors has made the fundamentals unfavourable for the rupee – including a massive trade balance deficit and a declining level of foreign direct investment (FDI).
Overall forex market has been hampered on the heels of the boiling global crude prices – its highest advances since 2014 is squeezing the carry-trade returns on the rupee to a point where they are the worst in Asia.
Crude prices hit a 3-year high supported by tight supply and planned US sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East
The Brent crude was trading at $78.96 a barrel in early Asian trade. India being a net crude oil importer, a rise in prices can affect the import bill and disrupt the fiscal position, derailing growth potential. Hardening prospect of a series Fed rate hike this year along with exodus of capital outflows were the other major trigger points exerting pressure on the rupee, a forex dealer commented.
The trouble is that a free-fall in the currency would lead to a wave of corporate bankruptcies and rating impact on these companies as they have kept most of their foreign currency exposures unhedged largely betting on rupee stability, a forex dealer warned.
Market slips into red on Karnataka poll outcome
MUMBAI: Reports of an alliance between the Congress and the Janata Dal (Secular) in Karnataka spoiled the party for equity investors who were hoping that the Bharatiya Janata Party (BJP) would wrest the last big state out of the Congress’ grasp. The Nifty 50 and Sensex erased their 1 per cent gains to end flat as investors hurried to book profits. The BJP’s victory in Karnataka would have increased chances of the party winning the General Election in 2019, dealers said. “…defeat by a narrow margin will not dent the Street’s optimism regarding the BJP’s chances to win in the general election next year,” Kotak Institutional Equities said in a report.
The Nifty 50 closed at 10801.85, down 4.75 points from the previous close, while the Sensex ended 12.77 points lower at 35543.94. “Whatsoever be the final outcome, this will give more depth to the market as concern over the performance of BJP in the next general election of 2019 will reduce,” Vinod Nair, Head of Research, Geojit Financial Services, said.
