Indian rupee hits new lifetime low against US dollar. Are record block deals the culprit?

The Indian rupee fell to a lifetime low of 83.62 against the US dollar on Thursday. Record block deals worth Rs 23,000 crore on Wednesday, which included Vodafone Plc‘s stake sale in Indus Towers, is said to be among the triggers behind the INR slide. The local currency had closed at 83.4550 in the previous session.The Indian stock markets achieved a new milestone the previous day executing five major block deals worth nearly Rs 23,000 crore which is the highest in a single day in terms of size. A lion’s share of the deal was accounted for by UK-based Vodafone Group’s 18% stake sale in Indus Towers for Rs 15,300 crore.

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said that the $2 billion outflows as a result of a block deal in Indus Towers could be a reason behind the rupee hitting record lows.

Apart from this, geo-political tensions were at play which led to the demand for USD, triggering fall in other currencies including the Indian rupee, Bhansali said. He said that foreign portfolio investors (FPIs) and the oil industry are big buyers of the US dollar.

Today the dollar index (DXY) was trading at 105.47 against a basket of six major currencies, gaining by 0.21 points or 0.20%.

A second cargo ship “believed to have been sunk” by Yemen’s Houthi militants in the Red Sea, escalating tensions in the maritime trade route, is seen as adding to the stress on the currency.

While the RBI has repeatedly intervened via state-run banks to limit rupee depreciation, such dollar offers were absent on Thursday which pushed the rupee to a record low, a foreign exchange trader at a state-run bank said.

A broadly stronger dollar, alongside weakness in the Chinese yuan, also pressured the currency during the day’s session, a Reuters report said, quoting traders.

Block deal impact

Germany-based ZF Group sold a 7.5% stake in its Indian unit, ZF Commercial Vehicle Systems, for Rs 2,194 crore. Shanghai-based Fosun Pharmaceutical Group sold a 5% stake in Gland Pharma to raise Rs 1,754 crore. Similarly, Client Ebene and CVCIGP II Employee Ebene sold 6.25 million shares worth Rs 750 crore in the car component producer Sansera Engineering.

The previous record for single-day block deals was Rs 17,854 crore on March 13, when British American Tobacco Plc (BAT) divested a 3.5% stake in ITC through an open-market transaction. That was worth Rs 17,485 crore, one of the biggest block deals in Indian capital market history.

Earlier, on January 19, block deals worth Rs 10,500 crore were executed. Tata Group holding company Tata Sons sold 23.4 million shares in India’s largest software services exporter Tata Consultancy Services for about Rs 9,300 crore on the day.

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