Rupee breaches 64 level in early trade, recovers to 63.84 later

Rupee is amongst the worst performing Asian currency and FII's are less optimistic on the outlook for India, which has been suffering from capital outflows

The Indian rupee continues to fall to new levels of 64 per US dollar due to heavy outflows by foreign institutional investors (FII) from the stock market. In the early morning trade the rupee reached 64.11, however it later recovered to 63.75 at around 10.30am.

 

The continuous fall in domestic currency raises serious concerns for the union government and the Reserve Bank of India (RBI).

 

A strong US dollar and concerns over funding the current account deficit (CAD) amid heavy outflows by foreign investors from emerging markets are weighing on the rupee sentiment.

 

Rupee is amongst the worst performing Asian currency and FII's are less optimistic on the outlook for India, which has been suffering from capital outflows because the barriers to investment are too high.

 

There were investments of around $15.35 billion in equity markets in the first five months of this year, whereas they have withdrawn investment worth $2.6 billion from June 2013 till date.

 

Its a vicious cycle, wherein rupee weakness is leading to a fall in equity markets as FIIs are withdrawing their money to protect their capital and this in turn is leading to further depreciation of the domestic currency.

 

In addition, JP Morgan on Tuesday downgraded India to ‘neutral’ from ‘overweight’ citing strain in balance of payments. This could further weaken sentiments of foreign investors.

 

The BSE 30-share benchmark Sensex fell below 18,000 levels by shedding 310 points or 1.7% to 17,997 points in early morning trade.

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