Finance & Stock Market
Foreign funds binge on Indian debt; what does it mean for the rupee?
By - 27 Feb 2024 09:43 PM
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Foreign money is already pouring into Indian debt ahead of their scheduled inclusion into JPMorgan and Bloomberg's global bond indices in August and September, respectively.Foreign portfolio investors (FPIs) net bought a little over $2 billion of Indian debt in February, after having pumped in $2.5 billion last month. January’s purchases were the highest monthly inflows into the debt market in more than six years. In comparison, FPIs have net sold around $3.5 billion worth of equity shares so far in 2024. FPI investments into Indian debt has been steadily rising since October when the proposed inclusion in the JP Morgan global bond index was announced.The strong foreign flows also provide a support to the rupee, because foreign investors need to convert dollars to rupees when investing in Indian bonds. This boosts demand for the rupee, and helped offset some of the pressure caused by FPI selling of equities. So far in 2024, the rupee has risen 0.4 percent. It was also the top three least volatile emerging market currencies in 2023. However, a stronger rupee also has drawbacks too. India’s exports become less competitive compared to producers in countries with weaker currencies. If demand for exports goes down, it means less dollars coming into the country. So far in 2024, the rupee has risen 0.4 percent. It was also the top three least volatile emerging market currencies in 2023. However, a stronger rupee also has drawbacks too. India’s exports become less competitive compared to producers in countries with weaker currencies. If demand for exports goes down, it means less dollars coming into the country. As for the rupee, looking at USD/INR rate, Mishra expects to see low volatility for the next 12 months. "The RBI also has the ammunition to dampen volatility on both sides, however, if we were modelling USD/INR, I would still anticipate mild depreciation. In case, we do start to get a lot of inflows, the RBI will tap into its reserves and keep the rupee down maybe 1-2 percent," Mishra stated in an interaction with Moneycontrol. |
