The Reserve Bank of India on Aug. 14 announced measures to limit foreign-currency outflows from local companies and residents, and boosted efforts to lure investment. U.S. housing starts and consumer confidence data today may stoke speculation the Federal Reserve will trim its bond purchases next month, after jobless claims in the world's largest economy fell to a six-year low.

Economic Affairs Secretary Arvind Mayaram today said there is no intent to defend the rupee at a particular level. The government doesn't plan to curb commercial outflows or impose capital controls, he said. The rupee touched an unprecedented 62.0050 per dollar today before closing 0.3 percent weaker from Aug. 14 at 61.6550 in Mumbai, according to prices from local banks compiled by Bloomberg.

The RBI steps “might be perceived as being regressive and tantamount to quasi-capital controls,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research report. “Despite being put forth as a temporary measure, uncertainty over more such action is likely to remain and possibly lead foreign investors to rethink plans to invest on fear of controls.”

Eoin Treacy's view Indian 3-month government yields are trading at 11%, the highest level in more than 20 years. With the current account deficit making daily headlines, attempting to curtail gold and oil imports appears rather desperate when what the country really needs is regulatory reform to improve efficiency and its appeal as a manufacturing centre.

The RBI stated last week that the measures instituted to pressure the banking sector are temporary in nature. Considering the government's funding costs, it is difficult to see how they can tolerate such high yields beyond the short term. As long as yields remains elevated, the Rupee is likely to remain under pressure.

The banking sector has been a leader for the Indian market since 2009 and remains a bellwether for the wider market. Despite the increasingly oversold condition, a sustained move above 11,500 is the minimum required to suggest a return to demand dominance

It is also worth considering that India's impressive globally oriented corporate sector is likely to benefit from the weakness of the currency. We consider Tata Consultancy an Autonomy since it dominates its niche and its revenue is globally diversified. The share had surged over the last six weeks but pulled back sharply this week to suggest mean reversion is underway.