Indian stocks were trading flat after rising as much as 1.3 percent earlier in the session.
The Indian currency closed at a new all-time low of 54.5 yesterday, marking a 22 percent fall this year, as reported. It gained in early trade Thursday as global risk assets stabilised after a recent selloff.
All Asian currencies, not just the rupee, have lost value against the dollar due to the eurozone crisis triggered by Greece's imminent exit from the common currency.
But that is unlikely to be of much consolation to households that are set to suffer the effects of inflation as all imports, including oil, get costlier. Outbound tourists and students too will have to shell out more rupees for the same amount of dollars.
The falling rupee will also have an impact on businesses. "This could be a death blow for various Indian companies. One key aspect is the impact on Indian companies in terms of the mark-to-market losses on the borrowings they made through ECB and FCCB routes," said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities.
He pointed out that the 22% drop has imposed an additional burden of $6.6 billion on Indian corporates that have borrowed money overseas. Accounting laws require companies to make provisions on foreign exchange losses on a quarterly basis.
On Wednesday, the Reserve Bank of India lost a crucial battle to keep the rupee within earlier support levels as the domestic currency lost 70 paise from Tuesday's close. Dealers said that having crossed the previous low of 54.3, the rupee is now in uncharted territory.
Although the root cause was global, dealers said the RBI's hand was weakened due to the government's inability to come out with policy measures to attract fund inflows or reduce the deficit.
(Source- http://economictimes.indiatimes.com)
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