Foreign Institutional Investors (FIIs) react to the drop in value of rupee

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Foreign Institutional Investment (FIIs) is the major source of India’s foreign investments. But these investments are having a bullish trend due to the decline in the value of rupee. They have sold out about Rs 9,500 crore investments till this year and it may increase in the coming weeks. They have also bought insurance against the market falls in value of rupees because of the expectation of that it will decline further when compared with the value of dollar. This reaction of FIIs to the drop in the value rupee followed a similar trend to those events that happened in August 2013.

In August 28, 2013 the value of rupee fell 14% to 68.83 to the dollar as the current account deficit increased to huge levels due to unprecedented gold imports and high oil prices. On 13 August, 2015 FIIs raised their short index positions (no of contracts) by 41% and increased its outstanding purchase index and had unwound their bullish index on futures bets. The total amount of FIIs net sale of index futures worth’s was Rs 2546 crore till this week. Their actions caused the Nifty to shed almost 2% in the week Thursday.

But on Friday the Nifty dropped 46 points (0.54%) and closed at 8,518 points above the psychological level of 8,500 and the index witnessed biggest single day gain in seven months. Following this FIIs after four straight sessions of net sellers of index futures, they purchased Rs 435 crore worth of Nifty futures. In August 2013, FIIs had cut their bullish futures bets on Nifty by 35% and raised short term bets on index futures by selling investments worth Rs 667 crore. Sensex also declined 169 points (0.6%) on Friday and closed at 28,067, above the crucial 28,000 mark. This made the currency to bounce back from intra-day low of 65.37 .It was lower than its weakest level on September 2013 were te value of rupees against the US dollar was at 64.98.

If Friday’s sharp bounce-back in stocks is not continuing, any further weakness in the value of rupee could spark a rise in market uncertainty and volatility in short-term. Portfolio investors would be affected hit by the decline in stock prices and weaker currency wic forces them to exit from stock markets.

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