Rupee movement will impact foreign portfolio investor (FPI) inflows into the Indian market, says a study by CARE Ratings.

The Indian rupee has depreciated by 14.1 per cent from the start of the financial year till the lowest value of 74.4/$ on October 9. Following this steep depreciation in the rupee, November has witnessed a reversal with the rupee closing at 72.3/$ on Wednesday.

“On the same lines, FPI flows have witnessed an investment outflow in five out of seven months this fiscal, with exceptions in the month of July and August. November (till November 14) has witnessed a reversal in this trend with foreign portfolio investors investing in India to the tune of $718 million, indicative of positive FPI flows in the Indian economy,” found the study.

September and October witnessed total FPI outflows of $7,881 million when the rupee depreciated by 3.8 per cent in September and further depreciated by 2 per cent in October.

$718-million inflow

An inflow of $718 million in November can be seen in line with the appreciation in the rupee from 73.6/$ in October to 72.8/$ in November (till 14th), CARE said.

There could be several arguments which could be linked to the recent FPI inflows in the economy, ranging from easing crude oil prices which augur well for the Indian economy, to moderation in inflation, improved indirect tax numbers, unchanged global monetary policy stance (US, BoE, BoJ and ECB), and strengthening of the rupee, the report added.

In addition, the rise in US treasury yields also has a negative impact on the FPI flows, reflective of an outflow of FPI flows. The US Fed has increased interest rates thrice this calendar year. This has seen US treasury yields scale multi-year highs, leading to FPI outflows from India.