India Rupee, Stocks Plunge Most in Asia on Junk Risk; Bonds DropJeanette Rodrigues, Shikhar Balwani and Rajhkumar K Shaaw
India’s rupee and stocks plunged the most in Asia on renewed concern about a credit-rating downgrade and as oil surged after a report of a missile launch in the Mediterranean. Government bonds fell.
The Bloomberg Dollar Index touched a seven-week high on speculation global investors will favor assets in developed nations amid signs their economies are recovering. Standard & Poor’s reiterated today it sees more than a one-in-three chance that India’s debt rating will be cut within two years.
Brent crude rose as much as 1.2 percent after Russian news service RIA Novosti reported the detection of a missile launch in the central Mediterranean. The missile launch was a test, the Israeli Defense Ministry said. Asia’s No. 3 economy imports almost 80 percent of its oil.
“With the rupee depreciating again due to the S&P threat, things are looking bad,” Deven Choksey, managing director at K.R. Choksey Shares & Securities, told Bloomberg TV India. “The missile launch is bad news as it has a huge impact on oil. Given our dependence on imported oil, the development may weaken the rupee even further.”
The rupee slid 2.6 percent to 67.7300 per dollar in Mumbai, the biggest drop among 19 Asia-Pacific currencies, according to prices from local banks compiled by Bloomberg. It plunged 8.1 percent last month, the worst loss since March 1992, and touched an unprecedented 68.8450 on Aug. 28.
The yield on the 7.16 percent government bonds due May 2023 jumped 12 basis points, or 0.12 percentage point, to 8.58 percent, snapping a three-day decline. The S&P BSE Sensex of 30 stocks lost 3.5 percent to 18,234.66, the most since Aug. 16.
The missile trajectory suggested the rockets were headed toward targets in the eastern Mediterranean, Russian Defense Minister Sergei Shoigu was cited as telling President Vladimir Putin today, according to state-run RIA. The missiles fell into water, RIA said, citing an unidentified person in Damascus.
S&P maintained its negative outlook on India’s BBB- rating, the lowest investment grade, credit analyst Kim Eng Tan said at a briefing in Seoul. Foreign funds pulled a net $2.3 billion from Indian bonds and stocks last month, exchange data show, on the prospect of the U.S. reducing stimulus that has buoyed emerging markets.
“The rupee was already under pressure due to a stronger dollar and the S&P news triggered further losses,” said Paresh Nayar, head of currencies and money markets at FirstRand Ltd. in Mumbai. “The market is thin and liquidity isn’t great and hence the moves tend to be exaggerated.”
India’s gross domestic product grew the least in four years, a government report showed Aug. 30. Economic growth slowed to 4.4 percent last quarter from a year earlier, compared with the 4.7 percent median estimate in a Bloomberg survey, official data showed.
The nation’s current-account deficit widened to a record 4.8 percent of GDP in the year ended March 31. The government’s target of limiting the shortfall to 3.7 percent this year would be higher than the 2.5 percent the central bank considers sustainable.
“The weak external position puts the currency under pressure and therefore limits policy makers’ ability to boost growth,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “Financing the current account is the single biggest concern for India right now.”
The 17-nation euro-region emerged from a recession in the second quarter and U.S. growth accelerated as unemployment declined, reports showed last month. Investors pulled about $44 billion from emerging-market stock and bond funds since the end of May, Cambridge, Massachusetts-based EPFR Global, which tracks money flows, said Aug. 23.
Raghuram Rajan, who is credited with predicting the 2008 financial crisis, takes charge as governor of the Reserve Bank of India on Sept. 5 as Duvvuri Subbarao’s term ends. A weak rupee boosts price pressures as India imports about 80 percent of its oil. One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, rose 51 basis points to 21.77 percent, the highest among 24 emerging markets tracked by Bloomberg.
“Monetary policy is hamstrung by currency volatility and concomitant risks to inflation and external imbalances,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research note today. “India lacks catalysts to reinvigorate growth, save for fiscal support.”
Three-month onshore rupee forwards fell 2.7 percent to 69.47 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 2.9 percent to 70.30. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.