The steady slide of the greenback has seen foreign institutional investors in India laughing their way to the bank. As the rupee is appreciating, FIIs have more than doubled their returns from the Indian market this festive season compared to their domestic counterparts. In the last one month Dollex-30, the dollar-denominated version of the BSE Sensex, has gained over 7.62% compared to the benchmark Sensex?s gain of 3.68%. On a yearly basis too, FIIs have earned 10% more than domestic investors since the Sensex has given a return of just 73.69% compared to the 83.35% gain in Dollex-30.
The Dollex-30 reflects the change in stock prices as well as currency values, and enables foreign investors to measure their equity returns in real terms, both in respect of domestic and international currencies. During the period, the rupee has appreciated by over 4% from Rs 48.24 a dollar on September 16, 2009 to Rs 46.31 a dollar till date. According to data available with the Securities and Exchange Board of India (Sebi), FIIs had bought net equities worth Rs 21,660.90 crore during the same time.
?Those foreign investors who have already invested their money would now be in a comfortable position,? says Edelweiss Securities president Naresh Kothari. ?Globally investors chase five major asset classes ? the US dollar, the euro, commodities, emerging markets and the yen. Now with the dollar witnessing a wider fall against major currencies, other asset classes are benefiting the most, especially commodities and emerging market equities,? he adds. For instance, gold hit a record high of $1070.40 an ounce last week following heavy buying on the back of a falling dollar.
?Emerging markets equities are acting as a hedge against the falling dollar and hence the Indian equity along with others is witnessing higher foreign inflows,? says Ambareesh Baliga, vice-president, Karvy Stock Broking.
?Companies in the export-related sector operating with a low margin of 8-10% would take a major hit because of the weakening dollar. Foreign investors would largely prefer a stable rupee than a volatile one,? feels Kothari.
The rupee has strengthened by over 10% from its low of Rs 51.47 a dollar recorded during March 2009.
The sentiments have been truly reflected in the stock market with majority of IT stocks remaining subdued in the last one month. The BSE IT index slid 3.55% during the period despite Infosys Technologies? better-than-expected second quarter earnings. This is when BSE sensitive index gained 3.68% to hit its 52-week high.
However, commodity producers on the domestic equity bourses were on a roll during the same period as the global commodity prices climbed steadily. In the last one month, the BSE Metal Index has gained 8.94% on the back of a strong rally in the stock prices of Sterlite, Tata Steel and Jindal Steel. All these stocks have given a return in the range of 8-12%.
Though the dollar is expected to remain weak following latest data from the US showing the government?s ballooning fiscal deficit, experts feel the rupee may not appreciate as sharply as has been witnessed in the last one month. ?Since further appreciation of the domestic currency will hit the export sector hard, I think Reserve Bank of India could intervene if the rupee breaches the 44.50 level.
Going forward, the rupee is likely to remain in the range of 44.50 and 46.50 a dollar,? says an economist with a leading institutional broking firm on the condition of anonymity.
