US and them theory

Written by fe Bureau | Mumbai | Updated: Sep 17 2014, 10:24am hrs
After shrugging off the continuous rise in dollar index for nearly four months, the Sensex has finally reacted to the strength in the greenback by losing nearly 827 points or 3% in last one week. Concerns over the US Fed Reserves move towards a hawkish policy stance took the dollar index a gauge of the US currencys strength against a basket of six major currencies to a 14-month high, Indian equity market has rekindled its negative relationship with the US currency. In the last decade, it had maintained a negative correlation of the order of 60% with the US dollar as this equation is also weakened by quantitative easing measures taken by several policy makers that drive the asset prices and fund-flow between various asset classes.

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Despite the latest correction that more or less coincides with a 4.5% decline in the MSCI emerging market index, there has not been substantial profit booking by the foreign investors. FIIs exited close to $150 million of the Indian shares in the last two sessions and have been net buyers of Indian stocks in September so far. For 2014, FIIs have purchased $14 billion in the Indian stocks, highest among any emerging markets. Besides, a general revival in investment outlook towards markets, the recent fall in commodities, especially crude oil prices, have landed a support to buying interest as lower prices are supportive to the import bill of the country.