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Rupee Falls Most in 3 Months as Stocks Fall: Mumbai Mover

March 22 (Bloomberg) -- India’s rupee fell the most in more then three months on speculation the slump in the nation’s stocks will spur foreign fund outflows.

The BSE India Sensitive Index, or Sensex, fell 2.3 percent, the most in Asia. The nation’s fiscal deficit for the year ending March 31 is estimated to widen to 5.9 percent of gross domestic product, 1.3 percentage points more than the goal, Finance Minister Pranab Mukherjee said on March 16 raising concerns about the government’s ability to control spending. Mukherjee aims to narrow the gap to 5.1 percent in the year starting April 1.

“The plunge in shares is probably worrying investors,” said Naveen Raghuvanshi, a currency trader at Development Credit Bank Ltd. in Mumbai. “Doubts over fiscal consolidation and dollar demand due to high oil prices are also having a negative effect on the currency.”

The rupee dropped 1.1 percent to 51.2175 per dollar in Mumbai, the steepest drop since Dec. 12, according to data compiled by Bloomberg. Earlier, it touched 50.2650, the weakest level since Jan. 16. The rupee has retreated 4.3 percent this month, the worst performance among Asia’s 11 most-traded currencies.

The current-account deficit, the broadest measure of trade, will widen in the year ending March to 3.6 percent of gross domestic product from 2.6 percent in the prior 12 months, Mukherjee told parliament on March 16.

‘Not Trivial’

Mukherjee’s failure to reign in the deficit, slowing growth and the rise in subsidies “could push the ratings agencies to put India on a negative watch-list and impose downright downgrade thereafter,” Taimur Baig and Kaushik Das, economists at Deutsche Bank AG said in a note to clients today. “The risks are clearly not trivial.”

Moody’s Investors Service has a Baa3, the last investment grade rating, while Standard & Poor’s rates the South Asian nation’s credit at BBB, the second-highest investment grade.

Oversea-Chinese Banking Corp. forecasts the rupee to drop to 52 per dollar by June.

“The currency has to contend with its twin deficits and potential rate cuts and remains a potential underperformer within the region,” the bank said in a note to clients today.

One-month implied volatility, a measure of exchange-rate swings used to price options, rose to 9.80 percent from 9.10 percent yesterday, according to data compiled by Bloomberg.

Three-month onshore forward contracts traded at 52.32 a dollar, compared with 51.66 yesterday, and offshore non-deliverable contracts were at 52.44 from 51.68. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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