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FIIs continue to pump in money-Rupee hits 39!

Friday, October 5, 2007 2 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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