The rupee has appreciated against many key sources of foreign investment in the stock market.
In a report, market daily Business Standard noted that the depository data shows that nine of the top 10 countries in terms of foreign portfolio investor (FPI) flows were common in both June 2022 and June 2021. And, the rupee has appreciated against six of the nine countries with respect to their home currencies between June 2021 and June 2022, it pointed out.
"It is up 15.96 percent against the Japanese yen, 9.24 percent against the Norwegian krone, 7.47 percent against the British pound, 7.3 percent against the euro (Ireland and Luxembourg), and 0.53 percent against the Mauritius rupee. The decline has come against the Canadian, Singapore, and US dollar," said BS.
It further noted that the assets under custody of FPIs, which have seen a depreciation in their home currencies against the dollar, were ₹20.3 lakh crore of the total FPI equity holdings of ₹41.3 lakh crore in June.
The FPIs, which saw the rupee appreciate against their home currencies, accounted for ₹13.9 lakh crore in equity assets under custody, it added.
An appreciating rupee is generally seen as a tailwind for foreign investors. However, analysts told BS that its performance against the dollar may matter more than the movements against the home currency.
This makes movements against the dollar more important when it comes to investment flows rather than the exchange rate between an FPI’s home currency and the rupee, analysts added.
UR Bhat, co-founder and director, Alphaniti Fintech, also told BS there has been a move globally for financial systems to be less dependent on the dollar, although it would take some time for the effects to play out.
Meanwhile, Piyush Garg, chief investment officer at ICICI Securities, said institutional investors often take a call on the asset class rather than on the currency. Future flows are likely to depend on India’s relative attractiveness rather than the outlook on the currency, he suggested.
