INSUBCONTINENT EXCLUSIVE:
The rupee's resilience in the face of economic headwinds has come to an end, with the currency losing its year-to-date gains in the space
of just one month.The country's massive domestic market is now dragging on the rupee as growth at home slows, foreigners pull cash from
local equities and the currency increasingly tracks moves in the yuan as the trade war heats up."Even though India is directly less
vulnerable to US-China tensions, it can't remain completely insulated to the wider risk aversion," said Dushyant Padmanabhan, a forex
strategist at Nomura Holdings Inc
The economic slowdown and capital outflows don't bode well for the rupee, he said.The rupee is set for its worst monthly loss in six years
and some analysts warn of more pain to come
expects it to approach the record low hit last October by year-end, while Nomura forecasts the currency to finish 2019 at 72.5 per dollar
That's weaker than the median estimate of 71 in a Bloomberg survey.Here are some of the reasons behind the currency's rapid
reversal:Growth SlowdownDemand for everything from cars to cookies has waned as the country's lingering shadow-banking crisis weighs on
And the increasingly bitter trade war has complicated the government's task of re-igniting Asia's third-largest economy.Not
surprisingly, data due Friday will likely to show that gross domestic product slowed in the June quarter, to 5.7 per cent."Fundamentals
remain challenging for the rupee, and it will keep depreciating given the global and local headwinds," said Ashish Vaidya, head of trading
India no longer enjoys "a premium" over other emerging markets, he said.Equity OutflowsForeigners have pulled $3.8 billion from local shares
since July, as a tax on the super rich announced in the budget last month combined with the risk-off mood triggered by the trade
conflict.While the government scrapped the levy Friday to prevent a vicious cycle of capital outflows and a weakening currency, the
withdrawals have persisted this week.Large outflows have fueled the rupee's weakness and the size of the drop "has caught a lot of people
by surprise," said Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore.China AngleRupee's fortunes are also
getting linked to the moves in the yuan, according to JPMorgan, which has moved away from its call of rupee outperformance against the
more-trade oriented currencies like the Korean won."If the CNY continues to depreciate against the USD, as we expect, we believe the rupee
will depreciate virtually lockstep with the CNY," analysts including Sajid Chinoy and Jonathan Cavenagh wrote in a recent note.August
WallWeak fundamentals aside, the currency is also in a seasonally weak month
The rupee has slid an average 2.3 per cent in August over the past nine years, data compiled by Bloomberg show
Yet this time, the losses are much larger than usual and have erased gains accumulated in June and July.Get Breaking news, live coverage,
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