Forex reserves up on exporter, expat flows

MUMBAI, OCT 7: Foreign exchange reserves of the country rose for the second successive week, driven by increased inflows from export earni...

MUMBAI, OCT 7: Foreign exchange reserves of the country rose for the second successive week, driven by increased inflows from export earnings and remittances from expatriates, analysts said.

The Reserve Bank of India (RBI) said on Saturday that foreign exchange reserves rose by $72 million to $35.434 billion in the week to September 29. This follows an increase of $101 million in the previous week. Reserves have recently been under pressure due to central bank efforts to manage a demand-supply mismatch of dollars which has kept the rupee under pressure since April.

Despite the latest increases, foreign exchange reserves are still down by 7.6 percent from their mid-April peak of $38.341 billion. "Any uptick above 46.15 (rupees per dollar) is inviting exporter dollar sales and ahead of the festival season the remittances from expatriates have also increased," said Srinivas Varadarajan, dealer at Morgan Guaranty Trust.

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Runaway crude prices and poor capital inflows dragged the rupee — convertible only on the current account — down last month to its record low of 46.41 to a dollar. It recovered subsequently as sentiment on the currency improved following the announcement of an international deposit issue by the country’s largest commercial bank, State Bank of India, targeted at expatriate Indians.

Called the Millennium India Deposit (MID), the issue, slated to hit the market in the third week of October, is seen raising at least $2 billion but there is speculation that it may raise twice as much.

The RBI encouraged the State Bank of India to come out with the issue in order to bolster India’s foreign exchange reserves and help meet a swelling oil import bill. "The leads and lags (in dollar flows) are shifting in favour of exporter remittances and importer abstinence… the MID will bring balance to the market," said Varadarajan, who felt that the rupee’s current stability was due to expectations of improved dollar supplies from the overseas issue.

The rupee ended Friday at 46.1075/115 to a dollar, some 5.6 per cent weaker than at the start of the calendar year. Analysts said the rise in the reserves would have been much higher but for outflows from foreign funds exiting Indian stock markets.

FIIs remain net sellers

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MUMBAI: Foreign institutional investors (FIIs) continued to remain sellers in the equity markets with net sales of Rs 189.2 crore in the first week of October. Mutual funds also sold equities amounting to Rs 34.5 crore during the period.

With the RBI’s mid-term credit policy round the corner, these institutional investors were active in the debt market with FIIs being net buyers of debt to the tune of Rs 96 crore while mutual fund bought Rs 143.76 crore of debt in the first week the month. Net investment (both debt and equity) by FIIs were also negative at Rs 93.2 crore during the same period.

The prevailing weak condition in the Nasdaq at the beginning of the week saw an outflow of Rs 286.2 crore by FIIs in equities. Investments in debt market was positive but remained at Rs 96.1 crore. Despite FIIs and mutual funds remaining net sellers during the week, BSE Sensex remained almost stable and closed at 4,092.42 compared to previous week closing of 4,090.38.