How Much Is Rupee Likely to Fall In Coming Days Despite FPI Net Inflows? Experts Explain

Despite foreign investments have reversed the outflow trend and saw net inflows since July after witnessing net outflows since October 2021, the Indian rupee is still falling to its record lows. The local currency depreciated 43 paise to a fresh all-time low of 81.52 against the US dollar in early trade on Monday. Experts say the rupee is moving in line with the massive fall in global currencies against the US dollar and might continue in the range of 81-82.

The rupee has been witnessing a decline mainly due to the strengthening of the American currency, risk-averse sentiment among investors and escalation of geopolitical risks due to conflict in Ukraine. On Friday, the rupee slumped 30 paise to close at a fresh lifetime low of 81.09 against the US dollar.

In the current calendar year, the rupee has declined about nine per cent after plunging to all-time lows multiple times. The domestic currency had stood at 73.77 to a dollar on January 12, 2022.

Foreign Portfolio Investment Flows

The major reason for falling the rupee in the past few months was the continuous outflow of dollars due to the exit of foreign portfolio investors (FPIs). However, after nine straight months of net outflows since October 2021, FPIs have since July turned net buyers now. In July, they pumped in a net investment of Rs 5,000 crore, Rs 51,200 crore in August and Rs 8,638 during the current month till September 23. Between October 2021 till June 2022, FPIs sold Rs 2.46 lakh crore in the Indian equity markets.

Experts On Rupee Fall

Vivek Iyer, partner and leader (financial services risk) at Grant Thornton Bharat, said investors are unwinding their rupee positions and taking dollar positions as the US Federal Reserve last week raised its key interest rate by 75 basis points and India’s rate hike decision still impending, which is likely to be lower than the US at 50 basis points.

Iyer added, “Additionally, the pace of interventions by the RBI has been less, given that the rate hike is just around the corner which is expected to reverse the currency losses the rupee is experiencing currently.”

The dollar index, which gauges the greenback’s strength against a basket of six currencies, on Monday rose 0.67 per cent to 113.94. Global oil benchmark Brent crude futures fell 0.58 per cent to USD 85.65 per barrel.

Anindya Banerjee, vice-president (currency derivatives and interest rate derivatives) at Kotak Securities, the rupee is moving in line with the massive fall in global currencies against the US dollar.

“Rupee cannot be an exception. But, FPI inflows, RBI intervention and lower oil prices should keep the rupee an outperformer compared with its peers. We expect a range of 81 and 82 on spot,” Banerjee added.

Among the major currencies, the British pound has fallen 20.9 per cent so far this calendar year, Japanese yen has dropped 20.05 per cent, Euro has depreciated 14.9 per cent and China’s yuan has slipped 11.16 per cent.

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