Portfolio inflows to boost India’s forex reserves

Healthy portfolio as well as FDI inflows are expected to boost India’s forex reserves

Healthy portfolio as well as general FDI [foreign direct investment] capital inflows are expected to further boost India’s foreign exchange reserves in the coming weeks.

Accordingly, the portfolio equity capital is attracted to India on the prospects of faster economic recovery.

Lately, issuance of green and AT1 bonds [also called perpetual bonds] carry no maturity date but have a call option by India’s corporate as well as banking sector along with FDI flows in general have led to a healthy accrual of forex reserves Rise in forex reserves are expected to keep rupee strong against the dollar in the week ahead reflecting in lower exchange rate of rupee against the UAE dirham.

“Healthy portfolio as well as non-portfolio inflows can led to further rise in reserves,” Emkay Global Financial Services’ Lead Economist Madhavi Arora said.

“The reason is optimism over India’s accelerated economic recovery and no signs of tapering in the US. This trend is expected to continue.” Consequently, India’s stock markets attracted over Rs60 billion in just few sessions last week.

Strong rupee

The inflow led to a stronger rupee as well as booming equity indices. Last week, an exponential rise in India’s ‘Special Drawing Rights’ allocation aided in the accrual of over $16.663 billion into India’s foreign exchange reserves during the week ended August 27.

In financial parlance, SDRs are international reserve assets which are created by the International Monetary Fund (IMF) and are periodically allocated to its members in proportion to their quotas.

The SDR balances are equivalent to liquid balances in convertible currencies in almost every aspect. The Reserve Bank of India’s (RBI) forex reserves increased to $633.558 billion from $616.895 billion reported for the week ended August 20.