The party continues. Less than a week into his stint as the governor of the Reserve Bank of India (RBI), Raghuram Rajan seems to have won the confidence of the currency and equity markets. In spectacular rallies on Tuesday, the rupee closed at 63.84/$ — notching up a 2.1% gain over Friday’s close — while the Sensex added a remarkable 727.03 points or nearly 4% to nudge the 20,000-mark. Hopes of a pick-up in foreign inflows on account of the RBI’s recent measures — especially cheaper swap facilities to banks — and a revival of equity flows helped the rupee rebound by over 7% from its all-time low of 68.85/$.
A fall in the trade deficit for August to a five-month low of $10.9 billion, from $12.2 billion in July, also aided sentiment in the currency and equity markets. Stocks posted their biggest single-day gain in four-and-a-half years as traders shed some of their pessimism over the depreciating rupee, trade deficit and the possibility of a conflict in Syria. Foreign institutional investors (FIIs) were back in business buying $400 million of Indian equities on Tuesday, according to provisional data, taking their month-to-date tally to nearly $700 million. In August, FIIs had sold stocks worth close to $2 billion in July and August.
The Sensex has now added 1,762 points or 9.6% in four trading sessions while the 50-share Nifty has gained 555 points or 10.3%.
Rajan, on his first day as RBI governor, announced special swap facilities that would reduce the currency risk that banks take on their foreign currency deposits and overseas borrowings. Analysts estimate the swap would bring in more than $10 billion through FCNR deposits.
“The rupee had overshot its true levels; so, this is a healthy correction. Various factors are at play here, including RBI’s taking away the oil demand, Syrian worries cooling down and stable or falling crude oil prices,” said Ananth Narayan G, head, global markets at Standard Chartered Bank.
Narayan believes the prospects of fresh flows coming into India by way of FCNR(B) and bank money is improving sentiment. “While uncertainties including elections and the possibility