Rupee extends losses as FIIs continue pullout

The rupee weakened, extending losses from its worst week since 1995, after data showed overseas investors pared holdings of local shares for the fifth straight day, the longest stretch since February.

The currency fell for a fourth day on concern money managers will pull more funds out of developing countries as the debt crisis in Europe fuels volatility in global financial markets. A gauge of swings in India’s stocks rose to an eight-month high on May 21 as a similar measure in the US touched the highest level in more than a year.

“The sentiment continues to remain rupee-bearish, tracking the weakness in the stock market,” J Moses Harding, a Mumbai-based executive vice-president at IndusInd Bank, wrote in a research note on Monday. “For the week, we need to track foreign investor actions in the stock market,” to estimate the rupee’s further movements.

The rupee slipped 0.1% to 46.98 per dollar. It slumped 3.6% last week, the most since October 1995. The rupee has lost 4.4% this quarter, the second-worst performance among Asian currencies after South Korea’s won.

Offshore forwards indicated the currency will trade at 47.41 to the dollar in three months, compared with bets for 47.33 at the end of last week. The NSE Volatility Index (VIX) touched 32.3 on May 21, the most since September.

The Chicago Board Options Exchange Volatility Index, the benchmark for US stock options, rose as high as 48.20 the same day, the highest level since March 2009. The rupee’s one-month implied volatility measured 14.5% on Monday, near a 14-month high of 15% touched on May 21. The gauge of expected currency swings is quoted by traders as part of option prices.