Are FII flows irrelevant to the Indian rupee?

The Indian Rupee has always been one of the more volatile currencies but has been in news around the globe as it has been hitting new historical lows for the past few months and is on the cusp of breaking the recent records as well. One of the most prominent causes for the movement of the Rupee has been attributed to FII flows coming into the nation. This notion was proven very well especially in the crisis year of 2008 where a net outflow was observed and the Rupee moved from 39.38 levels to 48.58 by the year end 2008, a whooping 24% depreciation on the Rupee. The same year funds worth USD 12.9 billion were withdrawn from overseas investors from the Indian indices.

This relation however has failed to perform in the current calendar year where funds worth close to USD 19 billion have flown in till date whereas the Rupee which started of the year at close to 53 levels is currently trading close to 55.70 odd levels. Some heavy flows were witnessed in the markets especially in the first quarter of the year but despite this the Rupee has failed to reflect similar sentiments in its value, rather trending higher to possibly breach the life time low of 57.33 levels.
It would be interesting to see whether this deviation stands as an aberration to the rule or rather there is a paradigm shift in the way one values the essentials of the Indian Rupee, only time will tell. As for now the fund flow theology definitely doesn’t seem to be working in favour of the Rupee.
The below graph pertains to the flow of Funds from FII’s in the Indian Indices on a yearly basis.
 
 
 
 
 
 
 
 
 
 
 
 
 
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