Analysts fear waning FII interest in 2016

MUMBAI: In the forex market on Monday , the rupee opened 1 per cent lower at 66.41 as the dollar gained globally. With the sensex falling 600 points in early trade, the domestic currency followed suit. However, while the markets recovered most of their losses, the rupee continued to be under pressure. Dealers feel that with the September levels being breached, the next resistance level would be 66.86.

"The negative sentiment following Bihar election results and the positive developments in the US economy have brought to fore the risks in the equity, forex and bond markets. The main driver for these markets would now be the emerging dollar strength. There is also the year-end effect of fund managers paring their risks," said Ashish Vaidya, head of trading at DBS Bank.

With Goldman Sachs shutting its BRICS investment fund and merging it with its emerging markets fund, most analysts are predicting an end to the BRICS theme. "If India does not figure in the investment theme for 2016, the country will find it difficult to get cheap funding to finance growth. The political situation is not particularly impressive and the risks for the India story appear elevated. Hence, the correction this time may be time-consuming," said Vaidya.

The dollar has been gaining against major currencies on the back of improved employment in US, which has raised the possibility of Federal Reserve hiking interest rates in December. A hike in US rates would result in funds moving to dollar investments.