To invest or not to invest? It is a Catch-22 situation for foreign institutional investors (FIIs) playing Indian markets. Even while stock markets are trading at attractive valuations, a sharper-than-expected slide in the rupee against the US dollar is keeping them away, say analysts.
FIIs stand to make decent returns on their investment in these conditions in case of a short rally in the currency, even if their bet on stocks was not all that good.
For instance, FIIs got richer riding on the back of the rally in rupee between August and September 2007. Those who invested $100 in the Indian markets during this time made a clear $102.89 without any major market risk.
The rupee had witnessed a runaway rally during this period to close at Rs 39.89, a nine-year high against the greenback and appreciated by 2.86 per cent in around 15 days.
However, the current situation has put dollar investors in a dilemma. For a fund managing $1 billion in India stocks, the fall in rupee value has meant a blow of over Rs 1,500 crore (Rs 15 billion) since August this year, merely due to currency depreciation.
The Rupee has depreciated around 18 per cent against the dollar in the past five months and fell below its all time low of 54p
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