FIIs get richer on rupee rise

It's a win-win situation for foreign portfolio investors in India following the sharp appreciation in the rupee against the US dollar.

The FIIs could take home some decent returns on their investments in stocks, even if they fail to make any return directly from the equities "" the gains from the currency appreciation itself will make them laugh all the way to the bank, say analysts.

With the rise of 2,183 points in the markets from August 23, when the markets started recovering on the back of a steady inflow of FII money, the rupee too witnessed a runaway rally to close at Rs 39.89 on Thursday, a nine-year high against the greenback. It has appreciated by 2.86 per cent from August 23.

Foreign exchange experts point out that this rise in the rupee may serve a golden opportunity to FIIs. Consider this: Those who invested $100 in the Indian markets on August 23 stand to make a clear $102.89 without any market risk, as of on Thursday.

Sachchidanand Shukla, economist, Enam Securities, points out that the 50 bps rate cut by the US Federal Reserve would "further lead to the appreciation of the Indian rupee and, as a consequence, the Indian markets may attract further overseas investment", he said.

But how far would the Reserve Bank of India (RBI) desist itself from stepping in to tame the rising rupee?

Shukla is of the view that the RBI would be wary of reducing the interest rates in the near future. "With the global oil and other hard (mining and energy products) and soft commodities (agriculture) prices at a record high, the RBI may not touch the rates, at least for the next couple of months," he said.

Even while domestic institutions were net sellers, the FIIs have invested a net over Rs 6,000 crore from August 23. While in the current calendar year, the rupee has appreciated by 10.90 per cent from 44.24 on January 2 against the dollar, the FIIs have been net investors to the tune of Rs 44,850.67 crore in this year, till date "" mostly through direct investments in IPOs.