How Do Foreign Portfolio Investors Influence Daily Movements of the Rupee?
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Synopsis
Discover how foreign portfolio investors are shaping the daily fluctuations of the Indian rupee. This insightful report reveals key factors driving currency movements and explores the potential impact of future agreements with the US. Don't miss the implications for investors and the economy!
Key Takeaways
- FPIs significantly impact the rupee's daily movements.
- RBI interventions play a key role in currency stabilization.
- Market volatility may continue until a US deal is finalized.
- Current account flows influence but do not fully explain currency shifts.
- India's retail inflation is projected to remain low.
New Delhi, Dec 17 (NationPress) Foreign portfolio investors (FPIs) significantly impact the daily fluctuations of the Indian rupee, which recently surpassed the 91 mark against the dollar, according to a report released on Wednesday.
The analysis from Bank of Baroda indicates that FPIs, along with the spot interventions of the RBI and alterations in the forwards segment, are crucial in understanding shifts in currency value.
The report notes, "However, there are instances of intervention through the buying and selling of dollars, which can obscure the statistical relationship," following a review of monthly trends.
In the month of December, FPIs acted as net sellers on nine out of eleven trading days. The bank indicated that the rupee may experience volatility until a significant agreement with the US is achieved, anticipated by March 2026. This, however, is largely a sentiment-driven factor rather than one grounded in economic fundamentals.
The daily flow of current accounts, including IT revenues and remittances, along with capital movements such as foreign direct investment and external commercial borrowings, also influence the market, albeit not being reflected in daily metrics, thereby limiting direct connections to movements in the rupee, the bank elaborated.
Furthermore, the report highlighted that the external account appears to be relatively stable, with the current account remaining manageable. It emphasized that capital flows—especially those from FPIs—could serve as pivotal elements, with the looming "shadow of the deal" between India and the USA shaping market behaviors.
Additionally, the report indicated that the trade deficit does not significantly impact short-term rupee fluctuations.
In another recent analysis by Bank of Baroda, it was projected that India’s retail inflation is likely to stay well under control in the third quarter of FY26, with the headline CPI inflation expected to settle at 0.4 percent, slightly below the Reserve Bank of India’s forecast of 0.6 percent.
The bank attributed this stability to declining food prices and stable core inflation, which continues to offer relief to consumers, despite some recent increases in vegetable prices.
Point of View
It's critical to recognize the vital role that foreign portfolio investors play in the Indian economy. Their influence on the rupee reflects broader market sentiments and economic conditions. While volatility may persist in the near future, it is essential for stakeholders to remain informed and adaptable to these changes that directly affect our financial landscape.
NationPress
17/12/2025
Frequently Asked Questions
What are foreign portfolio investors?
Foreign portfolio investors (FPIs) are investors or investment funds that are based outside of India and invest in the Indian financial markets. They primarily invest in stocks and bonds.
How do FPIs affect the Indian rupee?
FPIs influence the Indian rupee through their trading activities, which can lead to fluctuations in currency value based on demand and supply dynamics.
What is the current status of the Indian rupee?
As of December 17, the Indian rupee has crossed the 91 mark against the dollar, reflecting ongoing volatility influenced by FPIs and other market factors.
What is the significance of the RBI's interventions?
The Reserve Bank of India (RBI) intervenes in the currency market to stabilize the rupee by buying or selling dollars, which can impact the currency's statistical relationship with market forces.
What are the projections for India's retail inflation?
Recent reports indicate that India's retail inflation is expected to remain well-controlled, with estimates suggesting a CPI inflation rate of 0.4 percent in the third quarter of FY26.
