Home > Macro Trends, Market View > FIIs continue to pump in money-Rupee hits 39!

FIIs continue to pump in money-Rupee hits 39!

Friday, October 5, 2007 Leave a comment Go to comments

Now who told you that rupee is going to weaken as it has already risen too much? Many were talking about a 42 on the rupee to the dollar! Today it hit a new multi year high. Check my take on the rupee dollar equation here.

Dollar is in a deep downtrend against most of the currencies and the trend might accelerate if Fed goes for another rate cut. India might see another flood of liquidity.Already we have seen as FII much money in 10 days as we saw in first six months of 2006!

The logic is simple- India is now an investment grade country(graded by Moody’s and S&P). So why invest in US when the dollar is falling? Let us invest in India to take advantage of stronger currency, stronger economy, stronger stock prices and higher interest rates!

See what had written before the rate cut:

“And mind you, Indian markets markets might benefit from this rate cut as we might see more FII money chasing Indian markets due to interest arbitrage.

Another implication of the rate cut is the “weakening of dollar” . So rupee might continue to strengthen against dollars hitting IT companies. I feel the “devaluation” of dollar has begun and the process might continue.”

It will be interesting to see what RBI does to manage these flows.

Also watch for Fed’s next moves. It might choose to cut rates further to keep the US economy growing at the cost of falling dollar.

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  1. muananth
    Thursday, January 17, 2008 at 3:23 am

    Right hart while RBI has this problem it needs to control the inflow of funds. option could be to force investors with a lock in period this way you block short time investors.

  2. hart
    Wednesday, October 10, 2007 at 1:24 pm

    Some pity for RBI needed 😀
    Looking back at short term, it all started with high inflation. To control high inflation, RBI hiked CRR/ Interest ratio. This resulted in higher interest rates. Higher intrest rates eventually attracted more foreign capital. Now, increased capital is playing it’s part to a stronger rupee.
    Next what? People are suggesting interest rate cuts … which mean going back to where it started … 😉
    Poor RBI- ending up in one problem after the another! How much help marke4t stablisation schemes can provide to RBI, yet to be seen!

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