Rupee could falter if FII money dries up

Updated: Saturday, April 5, 2014, 9:28 [IST]

The rupee staged a remarkable rally against the dollar this week hitting a high of as much as 59.60 in trade. However, Thursday saw some pressure in the rupee and the currency ended the week at 60.08. The gains this week to the highest level of Rs 59.60 is the best level the currency has seen since July of last year.

What has supported the rupee is the mammoth fund flows by Foreign Institutional Investors (FIIs) in Indian equities. In fact, FIIs have purchased shares worth a net Rs 20,077.20 crore in March 2014. This is big money which has helped to support the rupee in the last one month.

However, the robust flows seems to be showing signs of tapering. For the last few sessions FIIs are net buying small quantities and on Friday, FIIs net bought in the Indian equities in the cash segment to the tune of only Rs 232 crores.

Should they continue to buy only marginally it may not help the currency a great deal. Also, the RBI may start intervening in the market to ensure the currency does not appreciate dramatically against the dollar, to help support the nation's exports.

Overall, it looks like 60 levels against the dollar would be a good support level for the currency and it might continue to trade at that level. What happens after the elections is another story altogether. At least until the election results, the rupee looks unlikely to weaken on account of the solid fundamentals, particularly a drop in current the account deficit. Check currency rates here

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