The Hindu Business Line : FII party isn't about to stop any day soon

Chennai April 16 The rupee breaching the Rs 42 to a dollar mark may be bad news for the country's exporters but it is not just software companies and garment manufacturers who are ruing the turn of events at the country's foreign exchange markets.

Spare a thought for the Reserve Bank of India, as well. That custodian of the country's monetary health, has blown nearly Rs 6,000 crore in the first 11 months of the fiscal 2006-07 on frequent interventions in the foreign exchange market. And here is how.

The RBI bought $24.517 billion at various times between April 2006 and February 2007. It laid out Rs 1,08,886.05 crore on such purchases as the RBI itself reports, in the April 2007 edition of the monthly Bulletin. That exchange rate to a dollar, on an average, varied between Rs 44.78 in April 2006 to Rs 44.12 in February 2007.

Conversion deficit

Well, the $24.5 billion it accumulated would fetch it only Rs 1,02,970 crore at the current exchange rate of roughly Rs 42 to a dollar. That translates into a loss of Rs 5,916 crore, or roughly Rs 6,000 crore in currency conversion.

Actually, it had better not rush into converting them back into rupees. Well, it is certain to not get even that. The sudden supply of dollars in the market would send the rupee's value into even dizzier heights, making the present Rs 42 to a dollar a case of absurd under-valuation.

But the countless non-resident Indians (NRIs) and Foreign Institutional Investors (FIIs) who had brought money into the country and converted them into rupees as deposits or corporate equity and debt, aren't complaining. They have reaped a windfall.

The windfall

The NRIs brought in, over the years, $ 22.07 billion as of March 06. The country's foreign exchange dealers would have valued it at Rs 98,432 crore if they had chosen to take it out then. Today that would fetch them $23.44 billion at the current exchange rate. That is a cool 6.2 per cent gain in currency conversion alone — an icing on the cake of handsome interest rate return on these deposits.

The FIIs aren't badly placed either. The market value of their equity portfolio is a matter of speculation. But some indication of how large this could be is available from the SEBI data on FII purchases, sales and net investments.

If the SEBI is anything to go by, they had this time last year, Rs 1,91,822 crore. While they have added to the kitty since then with additional net purchases, the dollar equivalent of what they owned then would have translated into roughly $43 billion.

Since equity prices have, if anything, only appreciated, the March 2006 holdings would translate into $45.67 billion — a six per cent currency conversion gain to the portfolio appreciation on the Indian stock market. No wonder, the FII party isn't about to stop any day soon.

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

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