FIIs step up buying after rupee nears 53 against dollar

Invest about Rs 2,700 cr in four sessions in debt and equity

Foreign institutional investors (FIIs) infused money in both equities and debt, as the rupee was nearing 53 levels against the dollar last week, on hopes the domestic currency may not fall much from that level.

In last week’s four trading sessions, FIIs, considered savvy investors, pumped in close to Rs 1,400 crore into Indian equities and another Rs 1,300 crore into the debt market, according to data provided by the market regulator, Securities and Exchange Board of India.

According to market experts, FIIs propped up buying during the week on expectations that the Reserve Bank of India (RBI) would spring into action to reverse the weakness in the rupee.
 

FLOODGATES REOPEN
Portfolio flows have reversed in the past few trading sessions

 

Net FII investment (Rs cr)

INR DebtEquity 16-Apr-174.4-551.751.7 17-Apr-350.8391.451.5 18-Apr-224.8282.951.8 19-Apr154.7-68.252.2 20-Apr-455.8328.352.1 23-Apr-56.0-338.752.5 24-Apr213.0-839.252.7 25-Apr-583.6-280.552.6 26-Apr-1043.6-195.652.6 28-Apr-1676.6-331.452.5 30-Apr235.4540.752.7 2-May473.3244.253.0 3-May39.491.253.4 4-May566.7512.553.5 Data compiled by BS Research Bureau                               Source:Sebi, Bloomberg

The rupee on Monday gained the most in percentage terms against the greenback in six weeks after the finance minister said the General Anti-Avoidance Rule (GAAR), which was causing anxiety among FIIs, was to be deferred by a year. The rupee gained 1.08 per cent against the dollar to close at 52.9 after falling to as low as 53.76 in intra-day trade. Investing while the rupee is weak increases FII returns in net terms, if the currency strengthens.

“It's a bonanza for FIIs wanting to invest now as both the rupee and the market have come off eight per cent from their February highs. In dollar terms, the market is 15 per cent cheaper from February levels,” said Piyush Garg, chief investment officer, ICICI Securities.

“FII investments had taken a back seat since April, as the rupee movement was unidirectional. With the postponement of GAAR and RBI relaxation, dollar flows could once again start coming in,” said Abhishek Goenka, founder & CEO, India Forex Advisors. On Friday, the central bank relaxed the interest rate ceiling on foreign currency non-resident deposits of banks to encourage foreign currency flows.

Rupee, Asia's worst performing currency in the past year, had rebounded from 54.3 against the dollar in December to 48.7 in February due to strong foreign investor buying and a slew of measures announced by RBI. However, once again the domestic currency started to slip since February due to drying up of portfolio flows as FIIs turned wary in the wake of the GAAR proposal, inertia in government policy making and slowdown in the economy.

This time, too, experts believe the rupee should stage a temporary comeback. However, from a long-term perspective, it remains on a weak footing, due to the worsening current account deficit.