statesman news service
MUMBAI, 22 JUNE: Foreign funds had massively dumped domestic equities on Thursday and Friday fearing 15 per cent to 20 per cent loss on their returns on account of the free falling partially convertible rupee. The total net sales by FIIs, according to figures available, was about Rs 3,000 crore although the currency shored up losses to end the week at 57.51 against the US dollar.
It had crashed to 59.98 a dollar earlier in the week. The jitters felt in the aftermath of huge withdrawals by foreigners from equity and debt markets, Dalal Street analysts fear, may bring down the benchmark indices by another 10 per cent to 15 per cent unless the rupee improves drastically against the dollar, a possibility under current global conditions appears unlikely.
They cite the 10 per cent fall in the rupee-dollar equation since 2 May hitting FIIs’ return on their net investment in domestic share markets. The debt market has been witnessing significant withdrawals by foreigners since 22 May when the rupee slide set in. They had till date sold debt bonds worth $5 billion of which $3 billion were dumped in the first fortnight of June.
Analysts say, Essar Steel which raised $1 billion last week through external commercial borrowings (ECB) may help improve dollar liquidity. The company, however, raised finance through ECB since the domestic interest rates are too high by global standards.
The Rs 2,136 crore sell-off on Thursday by FIIs as estimated by the Securities and Exchange Board of India was a panic reaction as foreigners are skeptical about the government’s repeated assurance that the rupee fall need not worry markets. The Thursday’s net sale in equities has been the highest in two years.
The foreign funds’ calculations have apparently gone haywire since they did not see a crash in emerging market currencies vis-a-vis US dollar. The Indian rupee has been the worst performer among them because of chaotic conditions on the financial and political fronts.
The FIIs had been expecting better returns on investment in equities and in debts as they assumed the rupee may not slide below 51-52-mark. The Reserve Bank of India intervened to calm the currency market last November-December when it sold more than $4 billion to satisfy the demand for US currency.
Dalal Street analysts aver the prospects of the stock market are closely associated with the volatility in the currency market since the investment mood or confidence of FIIs depends on the movement of the rupee. They fear that if the rupee falls further the markets are doomed  to witness erosion in domestic investors’ wealth.