US dollar and Indian rupee notes are arranged for a photograph in Mumbai. The rupee weakened for a second day, losing 0.3% to 67.10 a dollar yesterday.


India’s rupee dropped to its weakest level since September 2013 and sovereign bonds retreated on concern outflows from local assets will accelerate as the US looks set to raise interest rates this week.
Foreign holdings of India’s local-currency notes have fallen by Rs11bn ($164mn) in December, according to National Securities Depository data, after declining Rs46.9bn in November, the most since May. Stocks have seen withdrawals of $534mn this month. There’s a 76% probability that the Federal Reserve will increase borrowing costs at its December 15-16 meeting, futures contracts show.
“The Fed meet remains the major event to watch out for,” said Paresh Nayar, Mumbai-based head of currency and money markets at the local unit of South African lender FirstRand. “With the currency above 67 per dollar, a crucial level has been breached.”
The rupee retreated for a second day, losing 0.3% to 67.10 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency, which pared some of the early losses as traders said state-run lenders sold the greenback on behalf of the Reserve Bank of India, resumed its decline later in the day, falling to as low as 67.1275, its weakest level since September 4, 2013.
Sovereign bonds dropped. The yield on notes due May 2025 climbed four basis points to 7.82%, the highest level since August 24, according to prices from the RBI’s trading system. It has risen three basis points in December, after advancing 15 basis points last month in the biggest jump since June.
Consumer prices rose 5.41% in November from a year earlier after a 5% increase in October, according to data released after the close of markets.
Meanwhile India’s mid-cap stocks rebounded from a two- month low and materials producers helped the benchmark index eke out a gain in volatile trading before the US Federal Reserve’s final meeting of 2015 this week.
Reliance Communications surged 6.2%, the top gainer on the S&P MidCap Index. JSW Steel rallied to a nine-month high and Jindal Steel & Power had the biggest advance this month after the government levied an anti-dumping duty on some products Friday evening. Mahindra & Mahindra is set to sign an agreement to buy Italian car designer Pininfarina, people familiar with the matter said. Shares of the Indian maker of sport utility vehicle rose 1.8%.
The mid-cap gauge rose 0.7% at close. The S&P BSE Sensex changed direction at least eight times and moved into positive territory in the last half hour as European stocks rallied from a 10-week and Standard & Poor’s 500 futures pointed to stronger US equities. Indian stocks capped a second week of losses on Friday as global funds pulled about $200mn last week before the Fed’s policy decision and as concerns grew on the passage of a unified sales tax bill in parliament.
“Investors covered their shorts, taking a cue from the global markets before the Fed meeting, ” Rajendra Wadher, a director at PRB Securities, said in a phone interview. Indian equities may climb higher, supported by improving economic data, such as rising factory output and receding inflation, he said.
India’s wholesale prices fell 1.99% in November from a year earlier, less than the median estimate of a 2.47% slide. Official data released after Friday’s market close showed factory output in October expanded at the fastest pace in five years. The economy grew 7.4% in the three months through September, beating estimates, and is set to outpace a slowing China this year, data showed last month.
Still, global investors have sold $534mn of shares so far this month, adding to last month’s withdrawal of $1.1bn. That’s reduced this year’s inflows to $2.7bn, the smallest in four years. The Sensex has fallen 8.5% in 2015 and trades at 14.8 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at 10.8.
“I’m surprised that foreigners are selling when India is growing relative to rest of the world and the macro indicators, helped by the collapse in oil, are favorable to us,” Rajeev Thakkar, chief investment officer at Parag Parikh Financial Advisory Services, said in an interview with Bloomberg TV India. “In the US, rates will be close to zero even after the Fed raises it by 25 basis points. I would expect money to flow into India, rather than out, in 2016. You can’t paint all emerging markets with the same brush.”

India’s economy seen in debt upgrades at smaller firms

India’s smaller companies, which are driving the nation’s world-beating economic expansion as state enterprises clean up bad debt, are set to cash in on their improving credit ratings.
There were 3.2 times more upgrades than downgrades among firms with revenue between $20mn and $100mn in 2015, the best ratio in almost five years, Pawan Agrawal, chief analytical officer at Crisil Ratings, said in a presentation in Singapore. Mid-caps have issued Rs115.3bn ($1.7bn) of local bonds in 2015, set for the best year since 2011, and the average coupon dropped to 7.4% from 7.9% in 2014.
India’s economy grew faster than expected in the July- September period as mid-caps benefited from the policies of Prime Minister Narendra Modi, who created a federal ministry for entrepreneurship and made it easier for small business to access bank capital. By contrast, state-owned giants and other large companies struggle with shrinking exports and sluggish lending.
“The mid-sized companies are in a sweet spot,” said Agrawal. “They have used cash to reduce leverage. That’s the segment doing best in credit quality.”
As the smaller companies borrow more and expand, they are likely to create more jobs, according to Dharmakirti Joshi, Crisil’s chief economist. “It’s central for employment” because smaller companies “are more labour intensive,” he added.
Can Fin Homes, a Bangalore-based provider of home loans, issued 1bn rupees of 2019 notes with 8.45% coupon last month, according to data compiled by Bloomberg.
That was down from the 10.05% the firm paid on three-year securities it sold in 2014, the data show. L&T Metro Rail Hyderabad raised Rs2.5bn by issuing 2035 securities with a 9.81% coupon in November, Bloomberg- compiled data show.
The median listed mid-cap had debt equivalent to 79.8% of equity, better than 87.6% for larger companies, Bloomberg data showed. The median debt to assets ratio of listed the smaller firms was 31.6% in their latest filings, lower than the 32.3 of larger Corps, the data show.
The improving financial health among smaller enterprises is a boon for banks grappling with stressed assets that have soared to 11.1% of advances and are rising faster than the pace of lending. While borrowing costs for the mid-caps have dropped in the bond market, banks still haven’t fully reflected their improved credit quality in loan rates, according to Rakesh Valecha, an analyst at India Ratings in Mumbai.
The firms would pay closer to 12% to borrow from banks, Valecha said. For that reason, mid-caps will likely drive issuance in the local note market in the next six to nine months, he said.
Many of the larger firms are unable to increase investment and generate jobs as well as contribute more to economic expansion because they have too much debt, according to Valecha.
“There’s an improvement in consumer demand and the benefits are more visible for smaller companies,” Valecha said. “For some of the larger companies it’s leverage that’s standing in the way of turning around. Even some of those doing well are not investing because of that.”