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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 has said.
According to the global financial services major, FIIs have recouped around 25 per cent of the outflows seen during June-August, when the country witnessed its sharpest bout of FII outflows since the global financial crisis.
FII outflows
Between June and August 2013, 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 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.
Investor sentiment
As per the report, investor sentiments were boosted following the recent announcements over FCNR-B swap announcements, 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 — financing of CAD and actual CAD,” Deutsche Bank said, adding a tempering of the Syria risk have 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.
Rupee Vs dollar
The rupee is currently, hovering around the 62/USD 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 have 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 the 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.
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