Investors wary of Fed; sell Indian, other markets' assets again

India's rupee hit new record lows in a sell off prompted by the expected tailing off of extraordinary U.S. money printing. The Indian rupee broke past 64.50 to a new record low surpassing the previous low of 64.11. It closed the day at 64.11, a record low too. On cue, the BSE Sensex crashed over 660 points from the day's high on Wednesday. The 50-share Nifty closed at 5,302.54. The carnage in the stock markets extended to a fourth straight day as blue chip stocks slumped on fears of foreign investor selling ahead of a U.S. Federal Reserve report to be published later in the day that might give details of its stimulus policy. The Fed's largesse has been a major factor in the recent success of emerging market assets. Since the start of August, however, the rupee as well as currencies from countries such as Indonesia and Brazil have fallen more than 5 per cent against the dollar. The rupee has fallen more than 15 per cent in the last three months. Fears of the steady reduction in the amount of cash pumped into world markets from the United States are taking a toll on emerging markets in general, but especially those such as India and South Africa that rely heavily on foreign capital to plug funding deficits. Investors have also been dismayed by the piecemeal tactics employed to stem the currency selloff by some emerging policymakers who have balked at significantly raising interest rates for fear of hurting economic growth. India's battered government bonds were seeing their best day in 15 years after central bank the Reserve Bank of India announced some debt buybacks and eased some regulations pushing 10-year yields down almost 60 basis points But this provided little relief to the rupee. The Deutsche Bank said the rupee could soon hit 70 per dollar. "As numerous episodes of past currency crises have amply demonstrated ... currencies can overshoot substantially and remain so for a long time," it said. "India, we fear, is entering such a zone". Analysts reckon there is more pain ahead especially if the Fed does as expected. "The (recent) jump in U.S. Treasury yields highlights the pressure under which emerging bonds and currencies will remain until we get a clearer picture on the Fed policy outlook," said Simon Quijano-Evans, head of emerging markets strategy at ING Bank. Copyright: Thomson Reuters 2013

Investors wary of Fed; sell Indian, other markets' assets again

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