InvestorQ : Where do you see the rupee heading, especially in the light of the FPI flows?
swati Bakhda made post

Where do you see the rupee heading, especially in the light of the FPI flows?

Sam Eswaran answered.
1 month ago

While the Indian rupee may have closed better than the 79/$ mark, it looks like a matter of time before that level is breached for good. IN fact, the last one week alone, the Indian rupee fell by nearly 90 basis points to close beyond the 79/$ mark. The pressure is so intense that it looks like the rupee could dip further in the absence of any meaningful RBI intervention in the INR. The RBI has also been a tad wary of supporting the rupee beyond a point as it entails a cost in terms of depletion of forex reserves.

During the previous week gone by, the Indian rupee dipped by 8% to 79/$ and this was the lowest level ever. The fall has been quite rapid with the rupee falling from 74/$ to 79/$ in a span of just a few weeks. This is on account of the weakness in FPI flows, but that is one side of the story. There is also strong demand for dollars from the oil marketing companies as they rush to hedge dollar exposures against rupee weakness. For now, the rupee looks set to dip to 80/$ and perhaps weaker levels from there too.

Let me spend a moment on the magnitude of the FPI outflows to give you an idea of what triggered this fall in the rupee. FPIs have sold close to $35 billion of equities in Indian markets in the last 9 months; selling consistently each month. This is due to Fed hawkishness, high inflation in India, valuation concerns, cost of funds etc. We are seeing rampant risk aversion for the first time and this risk-off attitude has been one of the key drivers for FPI selling of such magnitude.