Bleeding rupee keeps India bears alert.

Byline: Panic strikes closer to home with credit troubles stalking European banks.

Mumbai: The bears are unlikely to go into hibernation anytime soon after tasting blood, keeping the outlook for Indian shares firmly downbeat in the near term.

A back-pedalling rupee will add to the pressure on equities as foreign investors count their losses.

Although domestic funds and institutions like the Life Insurance Corporation of India are stepping up purchases in the battered market, investors are not convinced about a turn-around in the near future.

Proof of this was in ample evidence on Friday when the Sensex plunged 4 per cent to its lowest close in 18 months, after the $700 billion (Dh2.6 billion) US rescue plan to bail out its debt-ridden financial sector was widely regarded as not enough to undo the damage and halt the economy from slipping into a full-blown recession.

"The gloom is omnipresent," said stocks trader Harshad Malek. "People are scared of their shadows."

With credit troubles spreading to banks in Europe, panic struck closer home. Last week the Reserve Bank of India (RBI) stepped in to calm depositors at ICICI Bank after they queued up in some places to withdraw their money.

Lehman exposure

The bank's shares slumped at one stage to Rs458 (Dh38), nearly 70 per cent below its year-high of Rs1,465, before closing the week at Rs504.50.

ICICI has said it has limited exposure to senior bonds of collapsed US investment bank Lehman Brothers, and it was making profits and was sound. The RBI also firmly stood behind the bank and assured it would provide liquidity if needed. Falling commodity prices will also weigh on shares this week, with a global economic slowdown expected to curtail demand for everything from oil to steel.

The Sensex, which fell 4.4 per cent last week to 12,526.32, is expected to head towards 10,000 with quarterly results from companies adding to the slide. The index has lost nearly 40 per cent this year, as foreign investors pulled out $9.4 billion, with almost $2 billion in September alone. The wobbly rupee is another worry for foreign investors as the currency's depreciation eats into their returns in dollars.

Soaring import bill, largely due to high oil prices, has piled heavy pressure on the rupee.

Weakest close

It fell to its weakest close in more than five years on Friday at 47.075 per dollar, down nearly 17 per cent this year, with half of those losses coming in the September quarter.

Data last week showed India's trade deficit jumped to a record $13.94 billion in August, above the previous month's $10.8 billion. The focus this week would be on the quarterly result from Infosys Technologies, the second largest Indian exporter of software services, whose revenues mainly come from the troubled US market.

- The writer is a journalist based in India.

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