FE Editorial : Forex factor

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The Financial Express: Feb 23 2009, 22:09 IST

The rupee went down recently and one of the reasons for that is that FIIs have turned net sellers again. But there isn’t any sense of crisis in the foreign exchange market. Neither is there much evidence of massive RBI intervention. As the Economics with FE research piece published in today’s newspaper shows, RBI has been moderate in its activity and low foreign exchange outgoes in terms of lower commodity (oil included) import bills have helped. It’s too early to say that the foreign exchange market has matured in India. But there are good signs. Also note that rupee depreciation isn’t changing the inflation game—global prices are too low for that to happen. The behaviour of FIIs is interesting. They were net sellers from May (before the global crisis hit full force) to November 2008(the month when the impact was felt the hardest). They then turned net buyers of equity (Rs 1,319.4 crore) in December last year on positive cues from the market. Then, lacklustre corporate results, the Satyam fraud, declining industrial production and dampened consumer demand spooked FIIs a bit. Equities worth Rs 32,924.4 crore were sold in January this year. So far in February, the trend is the same. The good flip side is that recent selling by FIIs has produced low valuations and therefore attractive investment opportunities for long-term retail and domestic institutional investors.

Other sources of foreign capital aren’t doing too well, either. On the external commercial borrowings front, latest available data shows that for

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