Mumbai: The sharp fall in the rupee against the dollar has wiped out almost the entire gain made by foreign portfolio investors (FPI) in the Indian equity market in 2018 till date.
While the Sensex has gained 11.14 per cent in 2018, Dollex-30, the dollar-linked version of the 30-share BSE Sensex has gained just 1.46 per cent as the local currency is down 8.7 per cent during this period.
Surprisingly, the equity market didn’t see any kind of knee jerk reaction from overseas investors over the last few weeks with the local currency resuming its downtrend amidst the tariff wars and emerging market currency crisis.
Infact they remained net buyers of domestic equities worth Rs 2,264 crore in July and 2,780 crore in August 2018.
“They are looking forward to a sharp revival in the corporate earnings growth in FY19 and FY20 after 3-4 years of tepid earnings trajectory. The resolution of massive non performing assets (NPA) clogging the banking system is also providing hope about a strong recovery in the domestic economy,” said Ajay Bodke, CEO and chief portfolio manager (PMS) at Prabhudas Lilladher.
According to him, the weakness in rupee appears magnified only when considered on a standalone basis. “However, if we compare the performance of the rupee with other major emerging market economies like Russia, South Africa or Argentina, we are in a much better position,” he added.
U.R. Bhat, MD at Dalton Capital Advisors said that foreign investors always takes into account the likely currency fluctuation before making their investment strategies.
“At the moment, there is nothing to suggest that the rupee would depreciate dramatically over and above the average depreciation per annum seen over the past many years. This fluctuation would have been adequately factored in their expected return from the Indian market,” he said.
Amidst all these global turmoil, the Indian equity markets are hovering around their all time high supported well by strong inflow of funds from domestic investors. “We are yet to see any major reversal of foreign fund flows from equity markets as India is much more stable when compared to other emerging markets. If there is an expectation of another 4-5 per cent depreciation in rupee, we could see some selling. Even then, its not a major cause of worry as we are no longer dependent on foreign portfolio money,” said Ambareesh Baliga, senior research analyst.