The Hindu Business Line : Declining rupee inflicts further damage on FIIs

The currently declining rupee (against the greenback and the Japanese currency) has accentuated depreciation in value of equities investments by overseas entities in US dollar and yen terms.

The local 30-share benchmark, Sensex, dropped 41.51 per cent from its peak in rupee term. But in dollar term, the plunge is sharper by around 10 percentage points at 51.12 per cent.

In case of Nifty also the loss is 10 percentage points more in dollar terms. The 50-share Nifty has shed 50.62 per cent from its peak.

However, in terms of all hard currencies the situation is not identical. In terms of Japanese yen, the decline in Nifty is even sharper at almost 52 per cent. But in terms of euro, the fall is little softer at 49 per cent.

Costly exit

Recent currency movements have made the exit from Indian equities more costly but entry cheaper than last year, according to Mr Gul Teckchandani, an independent equity strategist.

In the last one month, the Dollex 30, which is dollar equivalent of Sensex, has shed 19.37 per cent against the Sensex loss of 13.52 per cent. The Defty, the dollar denominated counterpart of Nifty, in the past one month dipped more (19 per cent) than Nifty (13.39 per cent).

“At the time of sale, particularly, when you are calculating your total return you also take a look at the currency factor,” said one former Merrill Lynch official.

However, in case of equity unwinding, an FII would fetch the value in the currency in which the underlying assets were bought, said CEO of Mirae Investment.

“Equities are bought through currency accounts – be in dollar, yen or euro. To take the exchange rate variations through currency swaps could be resorted to, but it is a different function, which may be taken separately by the FII or its client and has nothing to do with selling process in the equities,” he added.

But, he felt, if an overseas entity wants to take advantage of exchange rate variations among various currencies against rupee and if its currency view favours a particular currency, it could buy local equities in that currency now. In that scenario, the preferred currency among the hard currencies could be euro.

Related Stories:
Rupee gains on FII inflows

More Stories on : Financial Markets | Foreign Institutional Investors | Forex

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page