By SUDEEP JAIN and ASHUTOSH JOSHI in Mumbai and ANANT VIJAY KALA in New DelhiCONNECT
The Indian rupee fell to a record low against the dollar for the third consecutive session Tuesday, amid rising expectations that the U.S. will start withdrawing its monetary stimulus soon.
The rupee breached its previous low of 63.22 to the U.S. dollar, set Monday, and was last changing hands at 63.57.
The sharp currency loss continued to pull down stocks.
The Bombay Stock Exchange's S&P BSE Sensex, after being down as much as 0.9%, was off 0.4% in early-afternoon trading at 18236.82, while the National Stock Exchange's Nifty index, after being down as much as 1.1%, was also off 0.4%, at 5394.60.
Wall Street bank J.P. Morgan Tuesday downgraded the outlook for Indian stocks to "neutral"—or hold—from buy, saying the falling currency had changed the calculations for India's potential growth.
"If the rupee continues to slide then India will continue to underperform," it wrote in a research note.
The rupee has lost nearly 16% against the U.S. dollar since the start of May, reflecting investors' concerns that India could struggle to fund its current account deficit when developed countries roll back their easy-money policies. Also, analysts expect India's central bank to keep interest rates high to defend the rupee, which could slow the economy further.
But some analysts say economic challenges facing India are not new.
Atsi Sheth, senior analyst at Moody's Investors Service, said the credit-rating had factored in India's problems—including a high fiscal deficit, inflationary pressures and policy uncertainty—when analyzing the country's sovereign rating in July. Moody's had maintained a stable outlook for India's investment-grade rating.
"Our view has not changed since then," Ms. Sheth said in an email on Monday night.
Still, stocks have lost value as investors fear that a slowing economy will make India less attractive to foreign investors, leading them to sell Indian stocks.
The Sensex has fallen more than 5.5% over the previous two sessions.
On Tuesday, among Sensex's 30 constituents, automobile companies were prominent losers, as the worsening economic scenario has badly hit vehicle sales. Tata Motors 500570.BY -3.19% was down 4.2% to 288.90 rupees ($4.52), while Mahindra & Mahindra 500520.BY -3.05% had fallen 2.5% to 790 rupees.
Software exporter Tata Consultancy Services 532540.BY -1.67% was down 2.3% at 1,736.25, partly on profit-taking after recent gains.
