Rupee fall doubles losses for FIIs in India stocks

A free-fall in rupee, which touched a historic low of 58.98 against the US dollar last week, is resulting in a collateral damage for the foreign investors putting their money in Indian stocks.

While the stock market itself has been on a downtrend, the Foreign Institutional Investors (FIIs) are facing a double whammy due to rupee depreciation and they have suffered nearly double the losses incurred by their domestic counterparts in the past one month.

The BSE 30-share benchmark Sensex has plunged 5.12 per cent in the past one month, but the decline is much steeper at about 9.62 per cent for Dollex-30, the dollar-linked counterpart of Sensex that measures the index movement after taking into account the rupee-dollar exchange rate.

It is a sharp depreciation in rupee valuation against the US dollar that has led to this steeper fall in the Dollex. The rupee has lost more than five per cent against the dollar in the last one month alone, while it has fallen 4.8 per cent in past one year.

For the past one-year period, the Sensex has gained over 13 per cent, but the rise is relatively smaller at 9.52 per cent for the Dollex index, according to the BSE data.

A weaker rupee erodes the returns generated from the dollar investments made by the foreign investors.

From near 53-level a month ago, the rupee is currently trading below 57-levels against the US dollar and is among the worst performing emerging market currencies so far in 2013.

Of late, the Indian currency has been consistently hitting record lows and it slumped to a life-time low of 58.98 in the intra-day trade against the US dollar on June 11.

A confluence of negative factors including heavy dollar demand and slowdown in capital inflows put pressure on the rupee.

Finance Minister P Chidambaram, however, said last week that there was no need to panic over rupee depreciation and assured investors that policymakers will take steps to curb volatility in the forex market.

In a bid to accelerate the process of economic reforms and spur investment, government will soon decide on coal and gas pricing and review FDI cap in various sectors including defence.

The government has already hiked the government-securities limit for foreign investments by USD 5 billion. RBI has recently taken steps like hiking cap for online repatriation of export proceeds.

"Rupee can appreciate. Government has indicated some steps and I am sure the RBI will do its share to stem the slide," Dhanlaxmi Bank EVP (Treasury) Srinivasa Raghavan said.