Rupee Drops Most in a Week on Concern India Asset Run Overdone

  • Interest in equities probably ebbing: Kotak Securities
  • DBS getting wary of government bond rally as yields plunge

India’s rupee declined the most in a week on concern demand for local assets is waning after strong rallies in the nation’s stocks and bonds.

Foreign holdings of rupee-denominated government and company debt dropped by 15.1 billion rupees ($226 million) on Wednesday, the most since June 21, data compiled by Bloomberg show. The benchmark S&P BSE Sensex index of shares fell in the last two days, with its 1.1 percent slide on Wednesday being the steepest in more than a month. The gauge advanced 0.3 percent on Thursday.

“The recent selloff was a sign that probably the interest in equities is ebbing and that’s getting reflected in the rupee’s weakness,” said Anindya Banerjee, associate vice-president for currency derivatives at Kotak Securities Ltd. in Mumbai. “State-run banks have been seen buying dollars in the foreign-exchange market in the last couple of days as the rupee strengthened past the 67/dollar level.”

The rupee weakened 0.2 percent, the most since Aug. 3, to 66.8450 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. The Indian currency has gained 0.2 percent this month, after rising 0.8 percent in July in its biggest monthly advance since March.

The Sensex has struggled since reaching a one-year high last week amid the highest valuations in 15 months and an uneven recovery in corporate profitability.

Sovereign bonds on Thursday extended a rally that has driven benchmark 10-year yields to the lowest level since Sept. 2009. The yield on notes due January 2026 fell two basis points in its third day of declines to 7.08 percent, prices from the central bank’s trading system show.

To read more about the rally in Indian bonds, click here.

DBS Bank Ltd. is concerned demand for Indian government bonds will wane at current yield levels, according to a note Thursday.

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