Sensex $ returns at 21% in Dec.
--------------------------------------------------------------------------------
Pointers
Rupee appreciates 6 per cent.
Dollar declines sharply.
FIIs turn net buyers.
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Lokeshwarri S.K
If the year-end rally has made the domestic equity investors cheerful, foreign
institutional investors (FII) have a greater reason to celebrate.
They have made far greater returns in December than local investors, thanks to
the rapid appreciation in the rupee. It is, therefore, not surprising that they
have turned net buyers in Indian stocks in December.
There has been a reduction in volatility in stock markets since the beginning
of this month as the stimulus packages and rate cuts in India and elsewhere
calmed investors and spurred some value buying. The Indian benchmark index,
Sensex, has gained 14 per cent so far this month.
FIIs are, however, likely to have gained more, as their returns have been
enhanced by the 6 per cent appreciation in rupee. The gains for Sensex in
dollar terms this month (as measured by the Dollex) was an impressive 21.7 per
cent!
>From the brink
The Indian currency unit was tottering on the brink of a precipice, at Rs 50.5
to the dollar, even as late as December 2. But it reversed direction to rally
to Rs 46.7 in the next three weeks.
The change in fortunes for the rupee can be traced to the dollar losing its
haven status and depreciating sharply, against all major currencies. The dollar
index, which tracks the dollar movement against six major currencies, has
dropped 9 per cent since the beginning of this month.
This means that it has already ceded half its 2008 gains. The ostensible
reasons for the sudden decline in dollar are concerns over funding of the large
stimulus package announced by the US President-elect, Mr Barack Obama, and the
Federal Reserve cutting the target range for federal funds between zero and
0.25 per cent.
Dollar depreciation is beneficial for Indian equities in more ways than one. It
reduces returns on dollar-denominated assets.
For much of 2008, global investors have been making a beeline for US money
market funds and treasury bonds, as the steadily appreciating dollar was
perceived as a 'safe haven'. But now, with the dollar backtracking, these
investors may be forced to seek avenues elsewhere.
The appreciation in the rupee may also prompt foreign investors to take a more
favourable view of Indian stocks. One of the reasons for the exodus of foreign
funds out of India was the concern about a rapidly depreciating currency
widening the losses on their stock holdings
http://www.thehindubusinessline.com/2008/12/21/stories/2008122150900100.htm
Deeds, like seeds, take their own time to fructify.
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