Rupee, shares at record lows: More selling on the anvil

The Indian currency on Tuesday hit an all-time low closing the day at 66.24 against the dollar. Currency traders say that heavy dollar demand from importers and foreign institutional investors (FII) is one of the key reasons behind the rupee's free-fall. Pressure on emerging market currencies also weighted on the rupee today.

CNBC-TV18’s Latha Venkatesh gives an analysis of the rupee movement today.

It looks like foreign funds have decided to leg rupee out from emerging market funds. CNBC-TV18 spoke to a wide range of analyst, strategists, stock market and currency market specialists, all the way from Hong Kong and Singapore to London.

A lot of people in London have returned from vacation and have just joined in the trend in a very big way and that may have exacerbated selling. What exactly led to that crack and helping the markets come unhinged is difficult to say. It is probably the return of people from vacation though that might look like an over simplistic explanation.

When the Fed tapering will actually start, it could take away a little more and people decided to take away their money before that inevitable tapering happens. This is the only explanation for the fact that all emerging market currencies went through a fairly serious sell-off.

The Indonesian rupee is at a 4 year low, the ringgit is at a 3-year low, the Philippine currency is at a two and a half year low and the rupee went to fresh all-time lows. In case of India, the rapid fall in the currency was supported by the equity markets.

The steep fall in equity markets was clearly FIIs legging it out as there was a lot of evidence to it. In the August contract itself we have seen Rs 4500 crore worth of shares being sold-off exclusive of today’s sell-off.

Three of the past four days were green when the stock market ended positively and the market received negative numbers from FIIs as reported by Sebi with a day’s lag. In all those Rs 600 crore, Rs 1200 crore sell-off, the writing was on the wall and today the markets got liquidity because a lot of foreign funds were in the market and therefore, there was exacerbated selling.

Fall in stocks like HDFC indicated that those who had been in the market were taking away whatever little profit they had or were booking whatever losses they had to book otherwise stocks like HDFC. HDFC Bank does not generally fall 8-9 percent in a day. It was a top down decision to sell India, or sell emerging markets and therefore, it was equity markets casting pressure on the currency markets in a big way.

If one asked the currency dealer, he would tell you that largely the buyers were FIIs. It was dollar buying by FIIs. It was also importer buying but outpaced by FII buying. While the Reserve Bank of India (RBI) kept selling small amounts of dollar and later when the dollar became more expensive than Rs 66, one started seeing more concerted support from the RBI and that is how the market ended with steep losses of 2.2 percent but looks like this is not all. The market could be selling more.