Moneycontrol
Apr 19, 2017 07:37 PM IST | Source: Moneycontrol.com

Rupee closes higher against the dollar as FPIs buy bonds

FPIs have been heavily buying into Indian capital markets since the beginning of the calendar year. In all, they have invested around USD 6.5 billion in domestic equities and around USD 7 billion in debt so far.

The rupee appreciated by 6 paise to the dollar on Wednesday to end at 64.57. Dealers said heavy buying of Indian bonds by foreign portfolio investors (FPIs) helped the rupee pare some of Tuesday’s losses.

The rupee had fallen 11 paise on Tuesday as major private banks took long positions on the dollar.

FPIs have been heavily buying into Indian capital markets since the beginning of the calendar year. In all, they have invested around USD 6.5 billion in domestic equities and around USD 7 billion in debt so far. On Wednesday, FPIs were net sellers of equities but bought bonds, particularly late in the session.

“A lot of foreign investors are investing in Indian debt because they see plenty of opportunities, particularly at the shorter end of the yield curve,” said R Sivakumar, Head – Fixed Income at Axis Mutual Fund. “We think they will continue investing more, at least in the short term, even if the quantum may not be as much as we have seen so far.”

Also, the credit default swap rates for Indian bond issuers have gone down significantly over the last couple of years, indicating a fall in the perceived India risk. Market participants said that this was also a major factor in FPIs investing in Indian debt and that they are likely to continue doing so.

The rupee is now being perceived as a stable currency from investors’ perspective, thereby increasing the carry opportunities for them.

“The rupee is now ranked fifth in the 24-emerging market currency basket, in terms of appreciation since the beginning of the calendar year,” said Dwijendra Srivastava, Head – Fixed Income at Sundaram Mutual Fund. “Fund flows from foreign investors has been very strong so far; at this rate, we could very well see as much as USD 25 billion coming in by the end of the year.”

Meanwhile, the 10-year benchmark bond yield ended the session at 6.85 percent, 1 basis point lower than the previous close. A similar movement was seen across the 2-year, 3-year and 5-year tenures as well.
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