The Indian currency is now off the day’s low after hitting its lowest level since November 14, 2013.
The rupee plunged to a 13-month low on broad dollar strength. But the Indian currency is now off the day’s low after hitting its lowest level since November 14, 2013. It finally shut shop at 63.53 per dollar.
As the dollar strengthened, rupee was the only currency that did not weaken much. Rupee remained on par with the dollar even as other currencies, especially emerging market currencies and even developed market currencies like Euro and Yen, kept falling against the dollar. So now, when the world is in a mood to take profit it will start with India.
In India itself the best trade used to be long INR and short Euro, short Yen, any of the other currencies that were weaker than the rupee. Now is the time to take profit and there were very good reasons why that profit is getting taken over the past one week. There is a bit of global scare as well in the commodity-oriented emerging markets collapsed and there is a general emerging market pulling out of funds from these markets and India is one among the basket of emerging markets. So, where there is more profit, money gets pulled out. It is that general risk aversion that has hurt Indian stocks and that is what is affecting the behaviour of foreign institutional investor (FII) debt funds in India.
Year-to-date (YTD) India has got about Rs 1.2 lakh crore of equity funds but Rs 1.5 lakh crore of debt funds. There is both rupee profit and bond profit. Bond yields were entered into at eight quarter in 8.3 and when the bond yields fell to 7.8 percent, profits were huge. It was a good occasion to take profit and on Monday, FII funds were selling off corporate bonds and today it looks like they were selling G-Sec bonds. When they sell the bonds and take the currency out, there is bound to be pressure on the currency as well.
It appears that at around Rs 63.54 per dollar, the Reserve Bank sold some dollars. It may not be a great deal, this is only an inference, it is actually three public sector banks that are seen selling dollars. It is inferred that it was RBI’s support and thereafter rupee has remained stable.
Dealers’ opine that the FII funds have taken the profit they want, it is unlikely to see any further round of serious falls on a single day.