FIIs queue up for stocks as rupee falls

But foreign institutional investors (FIIs) looking to shop for Indian equities may see this as a blessing in disguise.

According to market watchers, FIIs may be looking to buying into the markets while the rupee is weakening and then book profits at a later stage when the rupee appreciates.

"The slide in the rupee has definitely aided fresh investments from foreign funds," said Samir Arora, a fund manager at Helios Capital Management, a Singapore-based offshore fund.

 

The data on FII buying available with the Securities and Exchange Board of India (Sebi) show that over the past week, FIIs purchased stocks worth more than Rs 700 crore in the domestic markets.

During this time, the benchmark BSE Sensex moved up by nearly 600 points to 17,353. The investment comes at a time when markets are volatile and investors' confidence is weak.

The slide in the rupee, however, has also eroded the value of investments already held by foreign funds. Arora said the sharp fall in the Indian currency has shaken most investors.

"This sort of a sudden fall in the rupee is seen for the first time since the late 1990s after the Pokhran nuclear tests and the subsequent economic sanctions on the country. Therefore, even though some fresh investments may be coming due to the falling rupee, it is difficult to predict a definite directions of the market," he said.

Meanwhile, the concern over the government's silence on the rupee's fall too seems to be mounting. "Policymakers are yet to publicly make a comment on the sudden downward explosion in the rupee, which has most of the investors in dilemma," said a CEO of a registered FII.

Deven Choksey, chief executive officer, KR Choksey Shares and Securities, who manages a portfolio of over $550 million, however, said it was likely that petro-dollars were flowing into the country as stocks could be picked up cheap due to the rupee's slide against the US dollar."

Choksey says foreign buyers, mostly some hedge funds, were pumping in money at present as there was lucrative opportunity to buy shares with less dollars and take home more when the rupee starts moving up.

The spot rupee reached a fresh 13-month low of 42.90 against the dollar on Friday following heavy purchase of the US currency by oil companies. It, however, recovered to close at 42.51 on Friday. The rupee has dropped by around 4.5 per cent in the last fortnight.

The recent meltdown in stock prices, which brought the index crashing down by over 5,000 points, has seen FIIs withdrawing over $1 billion from the equity markets.

Consequently, volumes too have dried up on bourses and some of the top investors, including hedge funds, have moved towards the commodity markets that witnessed an uninterrupted rally since the start of 2008.

"The markets seem to have picked up some momentum compared to the lull in March and April. But rising crude oil prices are yet a factor of worry for markets," said Ramdeoo Agarwal, joint managing director, Motilal Oswal Financial Services.