In an unusual trend, the rupee-dollar rate has ceased to move in tandem with stock market indices, thereby bringing some relief to exporters whose businesses have been hit by the appreciating domestic currency. This week, despite a 1,100-point fall in the benchmark Sensex of the BSE between Tuesday and Thursday, the rupee weakened merely by 17 paise.
On Friday, the rupee fell steeply, forcing the Reserve Bank of India (RBI) to intervene. The rupee, at the close of trading, had lost 18 paise at 39.71 to the dollar. Bankers said this intervention was largely to prevent heavy speculation in the currency. The rupee, thus, ended lower despite the fact that the Sensex ended up by 326.55 points, or 1.76%, at 18,852.87.
Up until now, the rupee has been moving in tandem with the Sensex: it gained when the Sensex rose and dipped when the Sensex fell. The change in this trend, according to bank and equity analysts, is largely attributed to a substantial reduction in foreign capital inflows coupled with the insignificant FII selling vis-?-vis the average daily volume of $30-35 billion in the domestic forex market.
According to figures released by equities watchdog Securities & Exchange Board of India (Sebi), equity sales of FIIs on Tuesday and Wednesday were just Rs 3,294.50 crore.
?On Wednesday, FII selling was nearly a quarter of a billion dollars, and this does not imply that they (FIIs) need to convert their selling into dollars and repatriate. They could be sitting on rupee funds given the overall trend of the dollar globally,?? said a senior executive of a British FII. This could also mean that FIIs may re-enter at attractive levels later, he said.
Equity and forex market players have been speculating that FIIs were likely to exit on account of the US mortgage subprime woes. The market has now discounted that. ?The sentiment has changed. Dollar inflows have certainly slowed but the weak currency movement is temporary and is a reaction to the corporate month-end demand for the greenback,? said Parthasarathi Mukherjee, president of treasury at Axis Bank.
?FIIs could have sold some portion of their portfolio but they have not opted for conversion of their entire rupee proceeds to dollars,? said a treasury head at a private bank. This implies that the supply of rupees has increased vis-?-vis dollars, at least momentarily, he said.