Re may fall as global funds set to desert India

The rupee headed for the biggest monthly decline since May 2006 as global funds pared emerging market assets, selling a record amount of Indian shares. The currency has declined 1.9 per cent from a nine-year high reached on July 24 as overseas portfolio managers sold $1.8 billion more of Indian stocks than they bought this month. Record purchases in July made the rupee Asia's best performer this year.

"We recommend investors to stay short rupees,'' said Vikas Agarwal, a currency strategist at JPMorgan Chase in Mumbai. "We've already seen outflows and with the situation still fluid, the risk of further large liquidation is real.'' A short position is a bet on a currency declining.

The rupee fell 1.6 per cent this month to 41.005 against the dollar. The Sensex is poised to end a five-month rally as subprime losses in the US spread to global credit markets, prompting investors to raise cash.

A record pace of growth in Asia's fourth-biggest economy fuelled a rally in the rupee this year, pushing it up almost 8 per cent.

Growth accelerated to 9.3 per cent in the quarter ended June 30 from a year earlier, the Central Statistical Organisation said.

Economic expansion averaged 8.6 percent in the last four years.

Foreign direct investment into India more than doubled to $19.5 billion in the year ended March 31. Capital flows into the stock reached a net $5.9 billion in July, a record, according to the Securities & Exchange Board of India.