Indian Rupee Slides to Record Low as Investors Dump Stocks

By Anil Varma

Nov. 20 (Bloomberg) -- India's rupee tumbled to a record low against the dollar as a rout in global equities added to speculation investors will increase sales of riskier emerging- market assets amid a deepening global economic slump.

The currency dropped the most in more than a week as key Asian stock indices dropped this morning, following losses yesterday in the Dow Jones Industrial Average and the S&P 500 Index. Eight of the 10 most-traded Asian currencies fell as Japan's exports shrank the most in almost seven years and U.S. consumer prices dropped by a record. Sales in Indian equities this year by overseas investors rose to a record.

``When the broad trend in equities is negative, we can expect more capital outflows from India,'' said Arun Kaul, treasurer at state-owned Punjab National Bank in New Delhi. ``The demand for dollars is very strong and the supply is limited. That's going to keep the rupee under pressure.''

The rupee declined 1 percent to 50.50 per dollar as of 9:41 a.m. in Mumbai, according to data compiled by Bloomberg. The currency's 22 percent loss this year is the third-biggest among the 10 most-traded currencies outside Japan.

The MSCI Asia Pacific Index fell 4.2 percent as Japan's Nikkei 225 Stock Average lost 5.2 percent. The Dow Jones Industrial Average and the S&P 500 tumbled 5.1 percent and 6.1 percent respectively yesterday. The Bombay Stock Exchange's Sensitive Index has dropped 57 percent this year.

Risk Aversion

``Concerns about heightened risk aversion among global investors continue to have a bearing on the rupee,'' said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France's Credit Agricole SA. ``That suggests vulnerability in the short term.''

Funds based abroad sold local equities worth a record $13.2 billion more than they bought this year, data released by the Securities and Exchange Board of India show.

Japan's exports fell 7.7 percent from a year earlier, after rising 1.5 percent in September, the Finance Ministry said today in Tokyo. U.S. consumer prices plunged 1 percent last month, the most since records began in 1947, while housing starts tumbled to an annual rate of 791,000, a record low.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.