The uninterrupted bull run in the equity bourses is attracting fresh money from FIIs, who betting both on the domestic stocks as well as on the short-term debt, CPs and T-bills.
Over the month of March, nearly USD 4 billion has been the inflow in both the segments. FIIs are allowed to invest up to USD 2 billion in commercial papers, which they have already exhausted. At the same time, they have exhausted nearly 90% of the investment limit of USD 5 billion in the Treasury Bills.
They still have goodish bit of free limits on the long term debt, both corporate and sovereign, but fear of higher yields can prevent them from taking large bets just yet.
Therefore, Indian rupee is going to be driven by the momentum chasers piling on the money train in the domestic equity market.
Today, central bank's invisible hand might have been present as a number of state run banks were heard to be on the bids in the Greenback. We expect RBI to play a hands on role in the coming days, as there is need to shore up the reserves and also infuse rupee liquidity in the system. However, as long as the domestic equity markets continue on their parabolic rise, we may see USD/INR get sold on rallies towards 60.90/61.10 levels. At the same time, US Dollar can find support around 60.50/40 region and then around 60.00/60.25 region. A clear breakout above 61.10 is needed to trigger a run towards 61.50/60 levels on spot.
By Anindya Banerjee, analyst, Kotak Securities