Do not see strong buying of dollars by FIIs: HSBC

Foreign institutional investors have been major buyers of the Indian equities, pushing the market higher since past few weeks, but off late they have been booking profits leaving the market in a range. 

The FIIs on Thursday sold heavily leading to a massive fall in the market. Some analysts believe that foreign investors are now buying dollars. However, Pradeep Khanna, MD and head of FX Trading, HSBC India believes that sentiment is playing a crucial role at this point in time and does not see any trend for strong buying of dollars by the foreign investors at the moment.

Also Read: Strong FY15 earnings to fire market up next year: Kotak Below is the verbatim transcript of Pradeep Khanna’s interview on CNBC-TV18 Q: Who are the actors in the market at this point in time? Are you getting a sense that the foreign institutional investors (FIIs) after decent period of supplying dollars are beginning to bid for dollars?
A: I do not think there is any such sense. We have not seen any consistent buying of dollars from FIIs as such. There have been days when FIIs have been buyers and days when they have been sellers.
As the data suggests there have been good, robust inflows on the equity side and there has been a certain amount of selling on the debt side. So, to the extent some of the debt outflows that were not hedged onshore would have resulted in outwards from the currency side. But overall, we have not seen any trend to say that there will be a strong buying of dollars from the FIIs. Q: Not even in the last 24 hours because we started seeing the thinning of FII flows in equities and yesterday a negative figure?
A: That negative number is small; it is about USD 50 million or USD 60 million in a market where the daily volume is about USD 4 billion. So, it is a drop in the ocean as such and no real trend can be made from that. Q: What could be the trend, not for the immediate term but for the next six months because the opinion is still split down the middle, there are a couple of brokerages like CLSA and UBS that still see the rupee depreciating to 70/USD in the second half of this fiscal but there are others who feel that because of the improvement in current account deficit, you may see the rupee stabilise, for the slightly medium-term what is your view?
A: I think one needs to take a bit of cognizance of both those viewpoints. The current account has improved a lot. If one looks at the trade numbers for the last few months, ballpark one would say that the trade deficit is in the vicinity of about USD 10 billion or USD 11 billion.
If one looks at the services data then software and remittances will give back that USD 10 billion per month. So, you aren’t left with any great deficit on the current account as long as your trade deficit is where it has been for the last three-four months. This is an important point to note because we have seen robust inflows from the equities side from the FIIs and we have net inward number on the foreign direct investment (FDI) side both of which are stable forms of financing.
The numbers do not indicate that we have a problem on the current account deficit side. But if you look at the way the currency is trading, it is trading with sentiment, both from strong dollar or a weak dollar. Sentiment as well as certain amount of domestic stuff where people looking for how elections will work out in Delhi and the other local elections and then will try and draw their own conjecture as to what is likely to happen next year. So, sentiment at this point in time is playing a very big role in circumstance where there is fairly balanced current account now and so, that is how the currency is broadly going to trade. Q: Will November 30 be an important day, some windows get shut, foreign currency non-resident (FCNR) and banking capital but will the market ignore since it is so widely known?
A: I think that is widely known. If one looks at the numbers that people expected, it would get collected through those windows, I do not think anyone was talking above USD 20 billion; many people were talking about USD 10-15 billion. We have already crossed USD 20 billion and I do not think there was any expectation that the windows would be extended. So, that is well discounted by the market and should have no impact.