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Rupee sting in foreign assets

Mumbai, March 30: Investors who rushed into foreign securities are licking the wounds a strong rupee has inflicted.

The government allowed residents to invest up to $25,000 abroad, but those who put money in foreign shares have seen their kitty sliced by the resurgent rupee.

The recent volatility in forex markets has sent the rupee soaring against not only the dollar, but other currencies too. “Those who invested in foreign assets are seeing a sharp erosion in their capital,” a dealer said.

There was a rush among rich individuals to invest in securities abroad after a Reserve Bank (RBI) relaxation on foreign exchange enabled them to spread risks.

Many banks, including big ones like Citibank, HSBC, Stanchart and ICICI Bank, wooed customers with schemes that would invest their corpus in foreign securities.

Banks peddled these plans as a one-stop platform for international investment opportunities. They brought in their international expertise in evaluating international mutual funds across countries and assets like equity, fixed income, gold and real estate.

So heavy was the response from customers that a concerned RBI asked banks to clarify if they were following norms such as the know-your-client code, said senior official affiliated to a foreign bank. Later, as a consequence of the increased regulatory surveillance, banks also stopped advertising these instruments.

Analysts, however, say that these schemes are not being promoted because of the recent turmoil in the markets. Investors stand to lose money as the rupee is appreciating every day against the dollar. In such a situation, it is better for the investor to wait and watch till the situation changes. Forex market watchers even talk of the dollar falling to Rs 43 in not too distant a future.

Investors who spent Rs 46 and more to buy dollars to invest abroad, are now seeing their portfolio shrivel, when valued in rupees. Unless of course, the investments appreciate sharply enough to offset the dollar’s weakness. “This is highly unlikely,” dealers said.

By contrast, foreign institutional investors (FIIs) are reaping a double bonanza over the past few weeks. Not only have they seen their investments in stocks grow, but have also got a windfall from the rupee’s strength. This happens because they are able to buy more dollars with the rupee that they earn from shares.

On Monday, the rupee gained a whopping 41 paise to touch a fresh 46-month high of 44.05/07 to a dollar.

The currency has gained a whopping 120 paise in the last seven trading sessions. It has gone up 2.5 per cent in the current calendar year, following a 5.32 per cent rise in 2003.

The rupee is being powered by foreign capital investment inflows and the Reserve Bank’s stance of not propping up the dollar. The currency has also gained against other leading world units like the pound and euro.

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