FPI outflows, Adani group's FPO cancellation sour mood for rupee

The domestic currency closed at 82.18 per US dollar as against 81.93 per dollar on Wednesday

Outflows of overseas investment and withdrawal of Adani Enterprises’ (AEL’s) Rs 20,000-crore follow-on public offer dampened market sentiment, weakening the rupee against the dollar on Thursday.

The domestic currency closed at 82.18 per dollar, against 81.93 on Wednesday. So far in 2023, the rupee has gained 0.7 per cent versus the greenback.

With outflows of foreign portfolio investment continuing unabated in January, the rupee did not manage to gain from a sharp global decline in the dollar after the US Federal Reserve’s (Fed’s) policy statement.

As expected, the Fed raised interest rates by 25 basis points. Market participants, however, interpreted the US central bank’s language as hinting at an end to the policy-tightening cycle, leading to a decline in the country’s bond yields and the dollar.

Following immense market volatility, the board of AEL on Wednesday decided to call off its FPO, saying it would “not be morally correct” to proceed with it, considering the volatility in the market and investor interest “being paramount”.

The fund-raising plan was expected to have seen some degree of investment from overseas investors which would have bolstered the rupee, observed dealers.

Earlier this week, the International Holding Company, controlled by a key member of Abu Dhabi’s royal family, said it would invest $400 million in the FPO.

“There were foreign portfolio investor (FPI) outflows on Thursday. Findings by Hindenburg Research are also hurting sentiment. I am looking at anywhere between 82.6 per dollar and 81.8 per dollar for now,” said Anindya Banerjee, vice-president-currency derivatives and interest rate derivatives, Kotak Securities.

“After a unanimous vote by the Federal Open Market Committee, there was sell-off in the dollar index. But the impact was not felt on the rupee. Over the near term, the rupee remains vulnerable,” he added.

 A weaker dollar typically boosts emerging-market currencies, such as the rupee. So far in January, FPIs have net-sold $3.8 billion worth of Indian stocks, revealed the National Securities Depository data.

“The Indian rupee becomes the worst performer among Asian currencies amid foreign fund outflows and corporate dollar demand from hedgers. The weakness in regional currencies and higher precious metal prices also weighed on the rupee,” said Dilip Parmar, research analyst, HDFC Securities.

“Spot dollar/rupee has crossed 82.1 - the 50-day simple moving average - and paved the way for 82.5 and 82.96, while on the downside, 81.8 becomes a strong support,” he said.