Chart of the day: Rupee falling, but FIIs not dumping stocks this time

Riken Mehta

Unlike on previous occasions in the last four years, the sharp depreciation in the rupee since January this year has not been accompanied by huge foreign fund outflows.

Foreign investors usually sell Indian shares whenever the rupee weakens as the value of their portfolio declines. This then sets off a vicious cycle as FII selling weakens stock prices and could trigger more pre-emptive selling by other foreign funds, which adds to the pressure on the rupee and then sets off the same cycle again.

So why are FIIs not selling shares heavily this time?

One explanation is that most short term players have already got out and the funds which invested in January and February are long term players. The other explanation, conspiracy theory if you may call it, is that a big chunk of black money stashed abroad would have come back to India for good.

Time Frame: Jan 2008 to May 2012

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