The unabated outflow of foreign funds continues to pinch Indian rupee, as domestic currency slumped by 33 paise to finish at a fresh lifetime low of 74.39 against the US dollar  on Tuesday. This is the six consecutive fall for the rupee against US dollar

Earlier in the day, the domestic currency erased all its morning gains to hit a new record low of 74.27 against the US dollar in afternoon trade.

At the forex market, the rupee opened higher at 73.93 and advanced to 73.88 on the back of selling by exporters amid weakness in dollar against some currencies overseas.

However, in afternoon trade, rupee plunged to trade at a fresh lifetime low of 74.27, showing a fall of 21 paise over its Monday’s close of 74.06. It broke previous record low (intra-day) of 74.22 reached on October 5.

Foreign institutional investors (FIIs) and Foreign Portfolio investors (FpIs) had withdrawn a net amount of Rs 1,242.46 crore on Tuesday, according to data on BSE.

According to the economists, it’s the combination of three factors that has led to the outflow of FIIs and FPIs from the Indian debt and equity markets  

  • Exchange rate risk  
  • Inflation risk 
  • Interest rate differential,

According to analysts tracking the movement of the rupee, the Indian currency fall is also triggered by concerns over fiscal deficit targets and rising current account deficit.

Meanwhile, the BSE benchmark Sensex dropped by 174.91 points, or 0.51% to  close at 34,299.47. Broader 50-share index NSE Nifty closed down 47 points or 0.45%, at 10,301.

The overall sentiment at the markets was also negative, with market breadth in the negative range. While NSE witnessed 1,156 declines against 678 advances, BSE witnessed 1,623 declines, against 1,003 advances.

“US Secretary of State Mike Pompeo and China’s foreign minister, Wang Yi are negotiating hard on trade disputes. The outcome of the meeting has global repercussions.  If there are signs of thawing trade disputes, it will catapult sentiments in markets across the globe,” Sharma added.

Meanwhile, according to noted economist Govinda Rao, the country’s fiscal deficit targets are under severe pressure due to government being unable to meet GST revenue targets. The fiscal deficit target for the current year was estimated at 3.3% by the government, a consolidation of 20 basis points.