Dollex index far from 2008 high as rupee tumbles to 68 from 39

Foreign institutional investors’ confidence in the Indian markets might have taken the BSE Sensex and the NSE’s Nifty to new highs but these investors have not made much money in the last six year. The culprit: the rupee.

Dollex still down 35%

The Sensex has moved above its 2008 peak after a lot of gyrations between January 2008 and November 2013. But the Dollex is still down 35 per cent from the peak it hit in 2008. The Dollex-30 is a dollar-linked version of the Sensex and represents the returns earned by FIIs after taking into account the movement of the rupee against the dollar.

Weakness in the rupee, which lost almost 36 per cent since January 10, 2008, against the US dollar has eroded FII returns since the previous peak. The rupee has depreciated from a level of 39.28 (January 10, 2008) to about 62 currently against the greenback.

Returns of broader market indices are even worse when denominated in dollars. The Dollex-100 is currently down 40 per cent and the Dollex-200 is down 41 per cent from the January 2008 peak.

Loss from all sides

The BSE-100 and the BSE-200, on the other hand, are just 5 per cent and 7 per cent away from their January 1, 2008, levels.

As the rupee has lost ground against almost all major currencies, such as euro and yen, FIIs would have lost money irrespective of the country they came from.

Foreigners have pumped in Rs 3.8 lakh crore into Indian equities since 2008. According to a CLSA study, FII portfolio has remained concentrated in the top 50 stocks accounting for 77 per cent of their total investments.

FIIs now control a record 19.1 per cent of the Indian market capitalisation.

However, according to CLSA, their share in the Indian markets did not rise in the September quarter for the first time since June 2012.

According to an analyst with a domestic brokerage firm who handles institutional clients: “FIIs are in a Catch-22 situation. They cannot afford to sell their shares due to the currency devaluation and at the same time they have to keep pumping in money to keep the currency and share prices stay afloat, as there has been no participation by retail or domestic funds to prop up the markets.”

Alternative view

However, according to Jagannadham Thunuguntla, Chief Strategist, SMC Global, “Unless one knows FIIs’ hedging strategies, it is difficult to ascertain whether they have made money or not in the Indian markets.”

He thinks it is not prudent to conclude that they are sitting on losses due to the rupee’s decline, as individual FII risk profile varies.

(This article was published on November 7, 2013)
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