Rupee has more downside

The rupee, Asia's worst performing currency this year, still has room to fall further after policy missteps by a struggling government, said Swiss private bank Lombard Odier's chief investment officer for Asia.

"I do not see clear skies for India at the moment," said Pranay Gupta, Asia chief investment officer at Lombard Odier, which manages 145 billion Swiss francs for its clients.

"The rupee still has some more downside."

India's economic growth has slumped to a near three-year low and its current account deficit is the highest since 1980, a gap that is difficult to control when the rupee is at a record low.

The currency dropped to a record low against the dollar on Wednesday, sparking mild intervention from a central bank seen by traders as reluctant to be more aggressive against such a strong down trend.

The rupee has been battered by India's wide current account and fiscal deficits, global risk aversion fuelled by the euro zone crisis and sluggish economic policymaking.

"You have a few personalities which are hellbent on stifling any kind of prudent economic policies that are laid out, and you cannot have a governing structure which facilitates that," said Gupta. "Democracy today is a failed experiment in India."

Just this month, the government delayed plans to tax foreign investors after an exodus of funds, partly driven by concerns the tax could be applied retroactively, battered the rupee.

Bearish On Equities Now

Gupta, who sold all his personal stockholdings over the last three months, also expects further downside for equities due to the high probability of a messy break up of the euro zone and political uncertainty in the U.S.

He advised investors to buy short term Asian corporate bonds for income, but added that he may look to pick up equities around September after the situation in Europe and the U.S. improves.

As China shifts its focus away from an investment-led economy to a consumption based one, Southeast Asian countries that supply consumer goods to China including Indonesia stand to benefit, but export-oriented economies such as Taiwan may suffer.