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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”

selling in equity markets pulling Rupee further down”

flying out – Rupee tumbles”

“FIIs

“Dollar

Now take a look at the real data in the table. 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 May’08 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 January’08 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.

Figures in US $ million

   

Increase

Net flow with respect to previous period

 

Net Investment by FIIs

decrease over

Exchange Rate (Rs / US $)

previous period

As on

Debt

Equity

Debt

Equity

   

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)

So

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.

the

MAIN reason is not FIIs selling

it

is just negative sentiments

everyone talking about

Disclaimer:

The views expressed in the article are the author’s personal views.

About author:

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