Samp;P downgrade hits rupee, bonds

MUMBAI, OCT 11: The downgrade of India's rating outlook by global rating agency Standard amp; Poor's Samp;P dampened the Indian curren...

MUMBAI, OCT 11: The downgrade of India8217;s rating outlook by global rating agency Standard amp; Poor8217;s Samp;P dampened the Indian currency and government bonds. The rupee continued its slippery trend and fell further by nine paise against the US greenback to 46.26/28 as the downgrading of India8217;s rating outlook by Samp;P and lower forecast of GDP growth by the Centre for Monitoring Indian Economy CMIE affected the sentiment badly at the interbank foreign exchange forex market today.

The rupee opened lower at 46.20/25, came under heavy pressure and moved downwards on sustained dollar demand from from foreign funds and domestic corporates. The unit tumbled to an intra-day low of 46.35/37, a striking distance from the all time-low of 46.40 it tested on September 20. However, the Indian unit, recovered some of the lost ground later as the demand receded and closed at 46.26/28, about nine paise lower from 46.1825/1875 of the previous day8217;s close.

According to dealers, the Samp;P8217;s downgrading of India outlook from positive8217; to stable8217; and forecast of lower GDP growth on account of hike in petroleum prices caused nervousness in the market. The net disinvestment by foreign institutional investors in capital markets also increased the dollar demand.

Samp;P had on Tuesday revised the outlook on India8217;s double-B8217; long-term foreign currency issuer credit rating to stable from positive, citing worries over the country8217;s worsening fiscal situation. The country8217;s decision-makers, cutting across all major political parties, have been unable to build a consensus in favour of measures to correct weaknesses in public finances and modernise India8217;s pervasive and largely unreformed public sector, it added.

India8217;s government bond market, keenly awaiting a revival after being subdued through most of the current fiscal year, is facing uncertain times again.

Government securities have shed gains made earlier this month as a slew of recent negative economic news dented trading sentiment and drove buyers away, traders said. The downward revision by Standard amp; Poor8217;s Samp;P, fiscal concerns reiterated by the central bank and fresh pressures on the rupee have reined in bond bulls and cast doubts over future market movements.

Prices of actively traded bonds were down 0.4 per cent in afternoon trade from Tuesday8217;s highs. In the preceding three weeks, prices were up by about 1.3 per cent. Overnight funds rates have risen to 9.50-9.75 per cent, above the 8.5 per cent central bank repo yield, the benchmark for call money rates.

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Currency traders attributed the weakness mainly to Samp;P8217;s ratings outlook revision and continued uncertainty over global oil prices. Dealers expect the current bond market uncertainty to continue till the rupee shows some signs of settling down again. It is currently around six percent weaker against the dollar than at the start of 2000.

Analysts said the revision could slow down foreign currency flows into India, hurting the rupee. quot;Fiscal worries have also put the market off,quot; added a treasury official with a state-owned bank.

Rating outlook on Lamp;T, RIL, Telco revised: Standard amp; Poor8217;s has revised the foreign currency sovereign rating outlook of Larsen amp; Toubro Ltd, Reliance Industries Ltd and Tata Engineering amp; Locomotive Co Ltd to stable from positive on the back of similar adjustment in the long-term foreign currency issuer credit rating outlook of India.

The BB8217; long-term foreign currency ratings of the three companies have been affirmed, Samp;P said in a release here today. At the same time, the BB8217; long term local currency rating of Tata Engineering amp; Locomotive Co Ltd was affirmed, while the local currency outlook remains negative, it added.