Forex kitty soars in spite of FII withdrawals

MUMBAI, MARCH 23 India’s foreign exchange kitty is rising despite the withdrawal of funds by foreign institutional investors (FII) from the stock markets and the turmoil in the global financial markets. Forex reserves have risen by $ 31.1 billion to$306.48 billion in 2008 so far.

On the other hand, FIIs have pulled out $3.597 billion in 2008 so far (January-March). In March itself, FIIs sold $795 million following the sustained hammering in the stock markets.

The FII pullout has happened after they invested a record $17 billion in 2007. A sizeable quantity came to India after the US Fed started cutting rates in September 2007. “Now with the US Fed cutting rates by another 0.75 per cent last week and interest rates in India remaining unchanged, there could be further rise in inflows. Dollar inflow is likely to increase as investors are likely to take advantage of the rate differential in both the countries,” said a banking source.

Bankers said the continuing inflow will strengthen the rupee further. “FII investment is only one component. Inflows through other sources are continuing,” said an official. “India is already the largest beneficiary of emigrant remittances in the world with $27 billion coming in 2007.” According to an RBI statement, major sources of accretion to foreign exchange reserves during April-September 2007 have been foreign investment, external commercial borrowings (ECBs) and short-term credit.