NDF market hints at a weak Re

Even as Indian market has not yet fully discounted the story of rupee appreciation, the overseas derivatives market in non-deliverable forwards (NDF) has forecast a rupee depreciation.

Heavy dollar buying by foreign banks active in the NDF market yesterday pulled down the spot rupee to a two-and-a-half month low of 43.7850 during the day.

NDF market operates in south-east Asian countries which have trades denonimated in rupee dollar by corporates. It is a derivative instrument with the underlying of the rupee-dollar exchange rate.

According to dealers, the outlook in the market towards the spot rupee has turned bearish with rising crude prices, yields in US treasury bonds and, most importantly, a complete slowdown in foreign institutional inflows.

While the spot rupee opened at 43.66/67, it closed at a low of 43.73/74 to a dollar after sliding down to 43.7850. Dollar demand by foreign banks and importers pulled down the rupee.

The currency has lost almost 13 paise since the weekly opening at 43.59/60 to a dollar. The future outlook on the rupee could be explained with the fact that while one-month dollars are available at 43.73/75 in India, NDF offers them at 43. 83/93 .

Dealers also added that the Reserve Bank of India intervened during the end of the day to protect the rupee from further depreciation and that is how it recovered back to 43. 73/74 to close.

The government's decision to hike crude prices as a pass-through effect of rising crude prices is acting as a hurdle for the government securities market.

This is because even if factors such as inflation and liquidity are comfortable, the market is ruling pretty rangebound. Even the most liquid segment, the 10-year paper is ruling in a band of 10 paise. The 10-year 7.38 per cent 2015 gilt closed at 7.07 per cent.

The 11.90 per cent 2007, reissued under market stablisation scheme but outside the indicative calender to suck out excess liquidity from the system, acted as a dampener in the market, said dealers.