Recent Reserve Bank of India measures boost investor sentiment

Foreign Institutional Investors (FIIs) have bought shares worth $1 billion in the past eight trading sessions following RBI Governor Raghuram Rajan’s recent announcements, a Deutsche Bank report said.

According to the global financial services major, FIIs have recouped around 25 per cent of the outflows seen over the June-August period, when the country witnessed its sharpest bout of FII outflows since the global financial crisis.

Between June and August, India saw FII outflows of $4 billion, leading to fears of a possible capitulation by FIIs, the Deutsche Bank report said.

“Following incoming Governor Raghuram Rajan’s announcements on assuaging currency markets, and particularly after the news flow over the FCNR-B swap announcements, we have seen the rupee partially recovering its losses and FIIs emerging as net buyers of close to $1 billion over the past eight trading sessions,” Deutsche Bank said.

As per the report, investor sentiments were boosted following the recent announcements over the FCNR-B, supportive trade data and easing investment facilitation in debt markets.

These measures have resulted in imparting “long needed and much sought after credibility over both — the financing of the CAD and the actual CAD,” Deutsche Bank said adding a tempering of the Syria risk had also assuaged investors, aiding inflows. Moreover, investors are keenly expecting a fuel price hike (both one time as well as a higher monthly calibrated hike). “Convergence of political will on critical economic issues also bodes well,” it said.

The rupee is now hovering around the 62 to a dollar level. The local currency had depreciated to an all-time low of 68.85 on August 28.

Citing anecdotal evidence, HSBC said bouts of sharp currency depreciation in India had generally been followed by periods of strong FII inflows into equities.

Earlier, between September and December, 2011, a rupee depreciation of 13 per cent was followed by a period of FII inflows of $8 billion over the next three months.

Similarly, rupee depreciation of 11 per cent over March-June, 2012, was followed by FII inflows of $6 billion over next three months.

“Investors are now watching both the Fed policy on September 18 and more importantly the RBI credit policy on September 20,” the report said.

More In: Economy | Business