Forex mart trembles too

The exit poll blues had its impact on the foreign exchange as well as the government bond markets.

The rupee lost about 17 paise to close at 44.20/21 against the dollar on Tuesday, compared with its Friday close of 44.03/04.

Bond prices fell across maturities with the yield on the 10-year benchmark paper rising to 5.11 per cent from the Friday's level of 5.08 per cent.

The rise on yield on the longer maturity papers was sharper as the prices of at the longer end crashed by over Re 1. The markets were closed on Monday on account of the second round of polling for the general elections.

"Fear is the key..... The forex market is nervous. We won't be surprised if the rupee weakened to 44.35 tomorrow," said a dealer with a new private bank.

Bond dealers felt the government securities market staged a knee-jerk reaction to the exit poll results. Month end dollar demands added to the nervous sentiment and importers were seen rushing for cover.

Bankers said the bond yield may firm up further unless the political uncertainties get over fast.

"There is enough liquidity in the market but in days of uncertainties, the outlook gets blurred. The volume of trade was low and that had impacted the price movement sharply," pointed our a bond dealer with a foreign bank.

Massive foreign exchange inflow has been the biggest contributor to the rupee's two-year rally. The rupee has rose close to nine per cent in 2003-04. It breached the 43 market in March end and forex dealers have been speculating about the Indian unit's possible rose to 42 till last weekend.

The second round of exit poll has changed the sentiment dramatically. "The rupee rally seems to be over, at least for the time being. It all depends on the stability at the Centre. The reforms process is indeed irreversible but to push it, we need a stable government. Otherwise, the foreign exchange flow will slow down," said a senior banker. The country's foreign exchange reserves now stood at over $117 billion.

Meantime, discounts on forward dollars narrowed on Tuesday. Annualised discount on six-month dollar ended at 0.33 per cent, compared with 0.69 per cent on Friday.