India rupee nears record low on capital outflows

India’s rupee yesterday fell the most in five months, approaching a record low touched in December, after foreign investors stepped up sales of local stocks amid concern Europe’s debt crisis will worsen.The rupee dropped for a second day, extending this quarter’s worst slide among Asian currencies, on concern a new government in Greece will reject accords for a European Union bailout. Stock-exchange data showed global funds sold $111.2mn more Indian equities than they bought on May 7, the most in two weeks. Overseas funds sold a net Rs11.1bn of shares last month after being net buyers in each of the first three months of 2012.Foreigners have invested Rs4.877tn in stocks and Rs1.377tn in bonds since they were allowed into the country in 1993.India’s $1.2tn stock market, Asia’s fifth-biggest, is influenced by flows from overseas. Inflows from abroad surged to a record in 2010, making the BSE India Sensitive Index the best performer among the world’s top 10 markets. The largest-ever outflow in 2008 led to the biggest annual slump of 52%.The BSE India Sensitive Index of shares lost 4.9% this month on concern Europe’s debt problems will prompt investors to seek safer bets than emerging-market assets.The index dropped 0.4% to 16,479.58 yesterday, its lowest finish since January 18.“The rupee weakness is led by developments in the stock market,” said Kamlakar Rao, head of foreign-exchange trading at Allahabad Bank in Mumbai. “Sentiment for the rupee is weak and there will be a further slide.”The Indian currency slid 1.3% to 53.8275 per dollar in Mumbai, the biggest decline since December 12, according to data compiled by Bloomberg. The rupee has lost 5.5% this quarter. It reached an all-time low of 54.305 on December 15.India’s trade deficit rose to a record $184.9bn in the fiscal year ended March 31 as economic growth slowed, government data shows. Asia’s third-largest economy expanded 6.1% in the final three months of 2011 from a year earlier, the slowest pace in 11 quarters. Standard & Poor’s cut the outlook on the BBB- sovereign rating to negative on April 25.The Reserve Bank of India lowered borrowing costs more than economists estimated last month to support growth, while parliament this week pushed back to 2013 a proposal to curb tax evasion on stock transactions.The rupee is falling “as poor earnings and global concerns outweigh the positive impact of easing tax uncertainties,” Priyanka Kishore, a currency strategist in Mumbai at Standard Chartered, wrote in an e-mailed research note. “Technically, the door is open for another stab at the 54.31 target.”