Strong inflows help push rupee to a six-month high

FPIs net buyers in equities at ₹4,323 cr.

Indian rupee currency symbol is outbalancing the US or Canadian dollar sign on a golden weight scale. A trader is touching the center of the slanting virtual balance. Metaphor for the forex market.

The rupee, which has been steadily appreciating in recent days, closed on Friday at 69.10 to a dollar, its highest level since August 10, 2018.

Strong inflow in both debt and equity segments helped the currency to hit a six-month high against the dollar. This is the fifth straight week the rupee has closed higher against the dollar.

After opening at 69.34 a dollar as compared to Thursday’s close of 69.35, the rupee went on to touch day’s high of 69.03 before closing at 69.10, up about 26 paisa or 0.37%.

According to provisional figures, foreign portfolio investors (FPIs) were net buyers in equities at ₹4,323 crore on Friday.

“FII inflows

“FII inflows have crossed ₹30,000 crore in Feb-March’19 till date, resulting in a flood of inflows after 2018 drought,” said Jagannadham Thunuguntla, head of Research (Wealth), Centrum Broking Limited.

According to data from the National Securities Depository Ltd. (NSDL), FPIs have been net buyers in equities at nearly ₹18,000 crore in the current month, following net purchases of ₹17,220 crore in the previous month.

In the debt segment, FPIs are net buyers at ₹2,499 crore in March after being net sellers in the previous month at ₹6,037 crore.

Several factors have been cited for the strong foreign fund inflows. One is that post the air strikes in Balakot, foreign investors are now factoring in a return for the Narendra Modi-led NDA government at the Centre.

The recent decision of the RBI for a currency swap to infuse rupee liquidity is expected to bring down hedging cost, prompting inflows in the short end of the corporate debt. RBI plans to inject $5 billion liquidity via a 3-year dollar-rupee swap auction on March 26.

“The current movement of rupee is due to a few factors. One, there is some stability in the emerging markets. In India, we are seeing consistent inflows in equity and debt segment. Markets are possibly pricing in a Modi victory, so the FPIs are taking position in India. We are also gearing some FDI flows in the month of March. Thirdly, there is a positive seasonality for rupee in March,” said Madhavi Arora, economist - Forex & Rates, Edelweiss Securities.

Dealers said with the central bank not seen intervening heavily to curb the rupee appreciation and with some FDI flows expected to come in March, the outlook for the rupee is bullish.

There could be $6 billion FDI flows coming in this month once global steel giant Arcelor Mittal’s offer to buy Essar Steel is finalised.

With strong inflows expected to continue, currency dealers said rupee could touch 68.5 to a dollar by March end.