This year, foreigners withdrew nearly $30 billion from the stock market.
Worsening external finances and a stronger dollar are also factors.
The Indian rupee fell to a new low as foreign investors continued to sell the country’s stocks.
On Tuesday, (19) the Indian rupee fell as low as 80.06 per dollar before reversing losses as traders speculated about possible central bank intervention. The currency has been battered by nearly $30 billion in foreign outflows from the country’s equities this year, a record amount, as well as concerns about a worsening current-account deficit amid high oil and commodity prices.
India’s policymakers have attempted to halt the currency’s decline with a slew of measures ranging from intervention to higher gold import duties, with a weaker rupee adding to imported inflation pressures. Other emerging market currencies are also under pressure as a hawkish Federal Reserve attracts capital to the US.
“The rupee faces further weakness,” said Dhiraj Nim, economist and FX strategist at Australia & New Zealand Banking Group Ltd. “Oil prices, in particular, remain volatile, and external headwinds from Fed tightening may persist.” The trade imbalance remains significant.”