Sliding Rupee Knocks Off $9 Billion From FIIs' India Holdings

MUMBAI: Foreign institutional investors (FIIs) battling uncertainty about tax liabilities are facing troubles on yet another front – the sliding Indian currency.
The value of international investors’ holdings in the Indian market has eroded by $9 billion in the past month when the rupee slid 4% against the US dollar, a calculation by ET shows.
This is in contrast to a near $40-billion notional gain in the first quarter when the Indian rupee was the best performing currency in the region. Experts are indicating that the rupee is likely to remain under pressure in the next few months.
“Foreign investors are somewhat worried about their Indian holdings because the weakness in the rupee does not appear to be just a short-term concern. The huge trade deficits and high inflation differentials with our trading partners, in addition to the potential consequences of GAAR, could result in the rupee dropping further in the foreseeable future,” said UR Bhat, managing director, Dalton Capital India.
Infosys Technologies, the darling of global investors, was the biggest drag on investor wealth, with the stock losing more than 14% of its value in Indian rupee, which translates into a loss of $215 million.
The worries about tax proposals and a worsening currency situation could dent investor confidence further.
In terms of the cumulative market value of all listed companies, the value of mutual funds’ holdings eroded by 681 crore in April while domestic institutional investors and retail investors lost about 5,117 crore and 2,000 crore, respectively.
“Though there is surplus liquidity, foreign investors are cautious on the Indian market, mainly because of issues like GAAR,” said said Madan Sabnavis, chief economist of Care Ratings. “Hence, they pulled out some of their investments in April. That is one of the reasons for the rupee depreciation. With the clarity on GAAR and subsequent capital inflows, the rupee should start appreciating by June end and I would think 55 level is possible at the higher side.”
FIIs, once the main drivers of the Indian market, have turned negative on Indian equities since April 1. After investing over 43,951 crore, or over $8.85 billion, in the first three months of 2012, pulled out 1,109 crore, or $206 million from equities in April. According to Sebi data, FIIs have also withdrawn 3,788 crore, or $721 million, from the debt market in April 2012.