FPI inflow wave of nearly $3 billion lifts rupee to strong spot
FPIs ploughed $1.1 billion into equities and $1.85 billion in debt in August, adding up to about $3 billion. The rupee gained almost 2% against the dollar last month. On Friday, it ended at 73.02, up 0.07% against the US currency.
“The reopening of the economy is on the fast track with the vaccination drive gathering significant pace ahead of the festival season,” said Sanjiv Bhasin, director at IIFL Securities.
Mumbai: The rupee’s recent strengthening has been driven by India becoming the top destination for foreign portfolio investment (FPI) flows, at a time when peers such as South Korea saw outflows over taper concerns.
FPIs ploughed $1.1 billion into equities and $1.85 billion in debt in August, adding up to about $3 billion. The rupee gained almost 2% against the dollar last month. On Friday, it ended at 73.02, up 0.07% against the US currency.
“Given the growth rebound in India and the hope of a muted third wave of Covid, we are likely to see a positive INR sentiment in the short term,” said Ashhish Vaidya, head of treasury at DBS Bank India. “While India has continued to see offshore investor inflows, the move is a broader reflection of dollar trajectory post Jackson Hole. The Asia EM has performed well, leaving out pockets like Korea.”
He was referring to the dovish statement made by US Federal Reserve chairman Jerome Powell regarding unwinding of the US stimulus programme. FPIs are expected to continue favouring India.
“The reopening of the economy is on the fast track with the vaccination drive gathering significant pace ahead of the festival season,” said Sanjiv Bhasin, director at IIFL Securities. “This gives confidence to global investors.”
Second-best Performing Asian Currency
ADVERTISEMENT
The surge in inflows has caused the rupee to strengthen sharply against the dollar in the past few days, helping it become the second-best performing currency among its Asian peers in August. The local unit gained 1.93% against the dollar last month. The Thai baht held the top slot, outpacing the rupee by a whisker as it strengthened by 1.95% against the greenback, Bloomberg data shows. “The rupee is also showing strength on the back of improving macro parameters,” Bhasin said.
Significantly, FPI investment in debt turned positive after a long time in August, thanks to abundant global liquidity. Central banks across the world have resorted to bond purchase programmes to infuse liquidity into the system, a move aimed at arresting the rise of the pandemic’s economic costs. This has pushed interest rates into negative territory. The value of the world’s stock of negative-yielding debt has ballooned to more than $16.5 trillion, according to an estimate by the Financial Times.
