Rate hike impact: FPIs pour in $337 million in last 3 trading sessions

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Mumbai | Updated: August 7, 2018 3:27:25 AM

After offloading bonds for the better part of 2018 between January and July, foreign portfolio investors (FPIs) have started nibbling at Indian paper in August.

Bond market experts say some foreign investors believe the bulk of the depreciation in the currency may be over and are staring to buy paper which remains attractively priced given interest rates are elevated.

After offloading bonds for the better part of 2018 between January and July, foreign portfolio investors (FPIs) have started nibbling at Indian paper in August. While they sold some $5.4 billion worth of paper in the seven months to July, the total purchases by foreign investors in the three sessions of August stood at $337 million.

Bond market experts say some foreign investors believe the bulk of the depreciation in the currency may be over and are staring to buy paper which remains attractively priced given interest rates are elevated. On August 1, the Reserve Bank of India raised the key repo rate by 25 basis points taking it to 6.50%. This was the second hike after the one in early June. The benchmark yield which was ruling at 7.70% on August 1 closed Monday’s trading session at 7.76%.

There are those who point out that bond sales were a reasonably big $1.4 billion in July — as investors anticipated a rate hike by the central bank. They believe FPI purchases in the near term could remain small since fears of the rupee depreciating further are not unreasonable.

Meanwhile, with foreign investors having sold equities worth $3.09 billion in July, the rupee remains a shade weak, and lost 27 paise on Monday to reach to 68.88 against the dollar at the close of the trading session.

In 2018 so far, the currency has weakened by 7.28%. The price of Brent oil has reduced in July, currently ruling at levels around $74.23 per barrel on Monday as compared to $77.30 per barrel.

India’s foreign exchange reserves fell by $950 million to $404.192 billion as on July 27, data from the RBI shows. Foreign currency assets (FCA), which form a key component of reserves, fell by $1 billion from the previous week to $379.037 billion. FCAs are maintained in major currencies like US dollar, euro, pound sterling and Japanese yen.

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