Mumbai: With the rupee plunging to record lows the misery for investors in India is just piling. This is particularly so for foreign portfolio investments whose value has been dented by 23.5 per cent depreciation in the Indian currency against the US dollar over the past 11 months.

What is worrying is the market perception that the rupee is yet to see a bottom. Foreign investors, the main driver of the domestic stock market, will not pump in money unless the rupee stabilises and they are assured the government is taking measures to revive growth.

“The volatile rupee is the new joker in the pack,” said equity salesman Kevin D’Souza. “Although the rupee’s fall makes buying shares cheaper for foreign investors, no one wants to be caught by another slide in the rupee.”

The rupee plummeted to 57.32 against the US dollar on Friday, the latest in a series of record lows. The slide, when prices of world prices of oil – the single-largest Indian import item – are tumbling, underlines a deeper malaise.

India’s economy has been in disarray for more than a year, and high fiscal and current account deficits are threatening to unravel the country that was until two years ago touted as the engine, along with China, to potentially power world growth.

The government aims to bring down the fiscal deficit to 5.1 per cent of gross domestic product (GDP) in 2012-13, but no one is convinced it would do so after this swelled to 5.76 per cent last year from an initial target of 4.6 per cent. GDP growth in the March quarter collapsed to 5.3 per cent – the slowest pace in nine years – from 9.2 per cent in the year-earlier period.

“We do not yet see light at the end of the tunnel for the rupee,” analysts at HSBC Holdings Plc wrote in a report. “This time around domestic factors — the uncertainty in the investment environment and the large fiscal deficit — are primary concerns for us.”

New Delhi’s inability to pursue economic reforms, cut populist spending schemes and ensure projects are not held up endlessly for want of government approvals have undermined investor confidence and halted capital inflows.

“We remain quite wary of the equity market prospects in India,” Masha Gordon, head of emerging markets portfolio management at Pimco, told Bloomberg-UTV.

“We need to see a number of things panning out, one being some sort of fiscal austerity being embraced, given a gap in fiscal deficit in India, and we clearly need broader liberalization.”

She is not the lone voice about the complacency with policy makers.

Fitch Ratings last week joined Standard & Poor’s to put India on notice for a possible downgrade to junk status if New Delhi failed to pull up its socks.

“Against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy,”

Art Woo, a director at Fitch, said.

The rupee’s slide from 48.60 in early February – and 43.85 in July last year – is piling enormous redemption pressure on companies with foreign debt. S&P’s says 48 Indian companies have foreign currency convertible bonds (FCCB) maturing in 2012.

More than half of these companies would have to restructure the bonds to avoid a payment default, S&P’s said.

“A tepid global economy has slowed FCCB issuers’ revenue and profit growth, dragged down their stock prices, and left them less able to service debt,” said S&P’s credit analyst Vishal Kulkarni.

“Redeeming the bonds will also be challenging for many FCCB issuers because they have limited access to funds and borrowing costs are high.”

Brokerage Edelweiss Securities estimates companies would have to shell out $4.4 billion in 2012-13 to redeem FCCBs. Most companies in the

BSE-500 index have unhedged FCCB commitments and would likely see mark-to-market losses of Rs83.1 billion due to the rupee’s slump, it said.

The writer is a journalist based in India.