Rupee off 2-month low, stock slide adds to worry

The Indian rupee ended down but off a near 2-month low that followed a slide in domestic stocks, strong demand for the dollar by oil importing companies and lacklustre interest from foreign investors. Dealers expect the rupee to remain in a bear grip for the next few months on likely negative stocks.

"With equities under pressure, slowing foreign inflows and steady demand for dollar by the oil sector, the short-term outlook for INR does not look good," said Ajay Mahajan, managing director and head of financial markets and institutional banking at UBS. "At current valuations, equities still look to have some downside left given the recent scandals, sluggish corporate earnings and high inflation." Indian shares declined for the third week in four, shedding 1.5 percent on Friday to their lowest close in nearly five months, hit by continuing foreign fund outflows.

The partially convertible rupee ended at 45.7525/7625 per dollar, after falling to 45.8450, its lowest since December 1 and 0.4% weaker than Thursday's close of 45.57/58. "The rupee pulled back from lows after the euro rebounded. Otherwise it could have touched 45.90 levels on Friday," said a foreign bank dealer.

Oil importers' dollar demand and strong dollar overseas added to the fall in the Indian unit. Oil is India's biggest import and refiners are the largest buyers of dollars in the domestic currency market.