Mumbai: The sharp fall of the rupee against the US dollar since the middle of April has pushed up stock prices of technology and export-oriented companies, but some foreign institutional investors, or FIIs, have temporarily put their investment plans on hold, say domestic brokers who place trade calls on their behalf.
The rupee has depreciated 5.7% against the dollar since 17 April, from Rs39.785 to Rs42.205 on Tuesday.
Most FIIs buy stocks in dollars and their returns are strongly linked to how the rupee performs against the greenback. “Some funds that invested in April have stopped capital allocation to India after the recent trend in the rupee,” said a broker who did not wish to be named.
Equity bourses around the world rebounded in April, and India was among the top-performing markets along with Hong Kong, Brazil and Japan. This rally, which helped the Bombay Stock Exchange’s benchmark Sensex index add about 13% from its March low, was supported by FIIs who bought stocks worth more than $266 million in April.
However, sentiments have changed and current market conditions indicate the Sensex will trade in the range of 15,000-18,000 points this year, said an executive at the institutional trade desk of a foreign brokerage in India, who did not want to be named.
Since 23 April, the net outflow was more than $300 million—two-thirds of it in May. So far this year, FIIs have net sold stocks worth $2.7 billion.
“There are too many economic parameters (dampening investor spirit),” said Nilesh Jasani, head of equity research in India at Credit Suisse Group, the Swiss financial conglomerate. Credit Suisse maintains its year-end Sensex target of 13,000 points, said Jasani.
A Hong Kong-based hedge fund manager views the sharp fall of the Indian currency as a tempting opportunity, if not for “other negative factors in Indian markets.” Potential returns could be higher if a fund invests at the current level, considering the domestic currency will appreciate from now, he said.
According to FII brokers, domestic worries including rising inflation and slowing industrial growth, apart from political interferences expected ahead of national polls next year, are concerns for potential investors in Indian stocks.
Dhruva Chatterji, senior research analyst in India at Lipper, the fund data provider owned by Thomson Reuters, said the stock rally in April was fuelled by positive global cues, robust fourth quarter results and the banking regulator Reserve Bank of India, or RBI, leaving unchanged the rate at which it lends money to banks.
“However, any further monetary tightening by the RBI or any dramatic increase in crude prices could dampen sentiments once again in the immediate term,” Chatterji said.
Ashwin Ramarathinam contributed to this story.