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Last Updated : Aug 14, 2019 02:40 PM IST | Source: Moneycontrol.com

Foreign investors in rupee bonds could face losses: Report

A selloff in foreign holdings of Indian corporate and government bonds could weaken the currency and worsen the situation.

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Representative image

The chances of foreign investors in rupee bonds facing losses are increasing as the currency becomes the worst performer in Asia, Bloomberg reports.

The Indian Rupee (INR) closed at 71.40 against the US Dollar (USD) on August 13, near a six-month low. It was hurt by global cues, especially the sharp drop in the value of the Argentine Peso.

Overseas investors typically don’t hedge currency risks for short-term debt investments in India, Samir Lodha, Chief Executive at QuantArt Market Solutions told Bloomberg.

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A selloff in foreign holdings of Indian corporate and government bonds could weaken the currency and worsen the situation.

“Any large-scale unwinding of bond holdings by foreign investors risks triggering a downward spiral for the rupee to a fresh low,” Lodha told the news agency.

The rupee has plunged after the Centre’s August 5 decision to revoke  Jammu and Kashmir's special status and make it a union territory (UT), carving out Ladakh as a separate UT.  The INR has fallen 3 percent against the USD so far in August.

Lodha said India is still an attractive investment destination due to the high interest rates.

“If the panic spreads, foreigners have to pull funds out of India or will have to hedge their exposures, which will eat into returns,” Lodha said.

The rupee is likely to recover from this year’s losses in the next 12 months, according to a Reuters poll.

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First Published on Aug 14, 2019 02:40 pm
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