…it is all about sentiments the real cause behind fall in Rupee

Just look at the following statements that have appeared so many times in news papers, magazines, television etc:

………………………Major cause for falling Rupee is outflow of US dollars

………………….FIIs selling in equity markets pulling Rupee further down

………………………………………………….Dollar flying out Rupee tumbles

Now take a look at the real data in the table.

					*Figures in US $ million*
	Net Investment by FIIs		Increase decrease over previous period		Net flow with respect to previous period	Exchange Rate (Rs / US $)
As on	Debt	Equity	Debt	Equity	Net flow with respect to previous period	Exchange Rate (Rs / US $)
March’ 06	151	45108
March’ 07	1384	50582	1233	5474	6707	43.44
Dec’ 07	3625	66329	2241	15747	17988	39.44
Jan’ 08	4110	63098	485	-3231	-2746	39.39
March’ 08	4511	63495	401	397	798	39.90
April’ 08	4089	63761	-422	266	-156	40.38
May’ 08	4048	62519	-41	-1242	-1283	42.53
June’ 08	3801	60016	-247	-2503	-2750	42.85
July’08	4698	59561	897	-455	442	42.47
August’ 08	5010	59261	312	-300	12	43.92
Sept 23, 2008	5756	57695	746	-1566	-820	45.39
Source – FII data – Sebi website & exchange Rates – http://www.oanda.com/convert/fxhistory (Interbank rates)

Yes, it is correct that the FIIs are selling in the equity markets but simultaneously they are also investing more in the debt markets. The net outflow of US $ on account of FIIs have been around US $ 820 million in September 08 (till 23^rd). Compare this to the net outflow in May and June 08, the net outflow in May08 was US $ 1283 million and in June was a whopping US $ 2750 million. The exchange rate was then at Rs 43/dollar levels and continued at those levels till August 08 then why suddenly in September 08 the Rupee has dropped so much. How can we forget the bloodbath in Indian stock markets in January08 when the markets fell heavily after reaching all time highs, the main cause of this fall in the stock market was also heavy selling by FIIs and then the net outgo of US dollars on account of FIIs was US $ 2746 million but Rupee stood straight against Dollar at around 39.40 levels for quite some time even after that.

So…….the MAIN reason is not FIIs selling…it is just negative sentiments…. everyone talking about FIIs selling, Dollar flying out, subprime crisis, fallout of Lehman etc. and the weak sentiments cause a panic in the markets which is the real cause of this outflow.

Disclaimer:

The views expressed in the article are the authors personal views.

About author:

Naresh Goyal and he may be contacted at goyal_naresh@yahoo.com.