By SUDEEP JAIN And ASHUTOSH JOSHI CONNECT
MUMBAI—India's currency and stocks tumbled again on Monday, with the rupee hitting a new low against the U.S. dollar, despite efforts by the government over the weekend to calm investors.
Investors are growing increasingly worried about how India will fare in an era of tighter global monetary policy, and doubtful about the government's ability to manage the country's economic problems and boost investor confidence as the rupee slides and the economy weakens.
"The market is in panic mode," said Pramit Brahmbhatt, chief executive of Mumbai currency-brokerage Alpari Forex (India) Pvt.
The rupee hit 62.44 against the dollar on Monday morning, a decline of 1.3% from late Friday in Asia, while the benchmark S&P BSE Sensex fell 1.3% to its lowest level since April. On Friday, it tumbled nearly 4%—its biggest decline by percentage in almost two years.
The rupee has fallen by 12% this year. The Sensex has dropped 5.3%.
Meanwhile, the yield on the benchmark 10-year government bond on Monday rose to 8.99%. Bond prices and yields move in opposite directions.
Prime Minister Manmohan Singh tried to calm investors over the weekend, telling Press Trust of India that the country wasn't facing a situation like that in 1991, when its foreign-exchange reserves were largely depleted and faced a risk of defaulting on its external payments.
This time, he said, India has enough reserves to pay for as many as seven months of imports.
Still, Nicholas Spiro, managing director of consulting firm Spiro Sovereign Strategy Ltd. in London, said in a research note Monday that "every new measure to restore confidence is less and less effective in turning sentiment around."
"Sentiment towards India is souring not so much because of the country's weak fundamentals but because of the lack of credible policies to address them," he wrote.
India has been hit by widespread selling of emerging-market assets in recent months that has been prompted by expectations that the U.S. Federal Reserve will soon begin cutting back on its massive monetary stimulus.
But India's economy has also slowed sharply, with growth hitting a 10-year low during the last fiscal year that ended March 31. Economists recently cut their growth target to as low as 5% for the current fiscal year, versus an expectation of 6.5% earlier this year.
The rupee has also been vulnerable because India needs large amounts of foreign capital to finance a wide current-account deficit—a reflection of the fact that it imports considerably more than it exports.
Losses in the Sensex on Monday were led by engineering major Larsen & Toubro, which fell 4% to 726.00 rupees ($11.6)—its lowest level since January 2012.
Bank stocks, among the worst performers this year, continued to fall.
Mortgage lender Housing Development Finance Corp fell 2.2% to 720.40 rupees, while HDFC Bank dropped 2.3% to 576.10 rupees.
Technology stocks, which get more than half of their revenue from the U.S., were higher. Software exporter Infosys gained 1.4% to 3015.00 rupees.
