Foreign exchange reserves continue to fall, to 561 billion dollars. here’s why

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India’s foreign exchange (forex) reserves fell further to $561 billion in the week ending August 26, 2022. The main component of reserves, foreign exchange assets (FCA), weighed on the down, while the indicators also contracted. The performance comes amid a return of foreign outflows and a strong dollar due to hawkish comments from the US Fed. The country’s foreign exchange reserves are expected to come under pressure as fears of a slowing global economy heighten caution in the market.

In the week ending August 26, RBI data showed India’s foreign exchange reserves stood at $561.046 billion, down $3.007 billion from the previous week. FCA fell from $2.571 billion to $498.645 billion in the week under review.

Meanwhile, among other things, gold reserves fell $271 million to $39.643 billion in the week ending August 26.

Dr. Nishant Srivastava, Head – Retail Brokerage

and Distribution of Reliance Securities said: “Foreign exchange reserves have fallen as we have seen some slowdown in FII buying over the past few days as the dollar index recovered to its 20-year high again. at 109, which could put pressure on emerging markets.”

Data from Stock Edge, which tracks the performance of FIIs on Nifty, revealed that in 2 days of September, FIIs sold off 2,299 crore shares. In August, the FIIs bought 22,025.62 crores.

August is the only month where FIIs have been net buyers so far in the current year. September’s two-day decline suggests a resumption of outflows of foreign funds.

FII’s largest outflow into equities was in June and May to the tune of 58,112.37 crores and 54,292.47 crores respectively.

In the first six months of 2022, IFIs removed 2 83,405.32 crores. The second half of the year also started under selling pressure but with a slowdown in outflows towards 6,567.71 crore. However, FIIs emerged as aggressive buyers in August, which helped recoup some of the earlier year-to-date losses.

Overall, FII outflows in the Indian stock market are currently at an all-time high due to macroeconomic uncertainties. So far in 2022, IFIs have removed 270,246.51 crore shares. The last time FIIs were sold in lakh crore was in 2008 when the outflows stood at 101,802.5 7 crore.

Last month, in the Jackson Hole speech, US Federal Reserve Chairman Jay Powell said that interest rates had to be kept high to fight inflation at the expense of economic growth. The US dollar hit its highest level in two decades and many analysts expect it to strengthen further against a basket of currencies, leaving the rupee vulnerable.

On Friday, the Indian rupee depreciated to 79.87 against the US currency as strong demand for dollars from importers and weakness in the equity market dampened sentiment.

“A rising dollar index and rising US bond yields could be reflected in elevated domestic market volatility in the near term,” said Vinod Nair, head of research at Geojit Financial Services.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said on Friday: “FIIs are increasing their short positions in derivatives. and the run in the US 10-year bond yield to 3.26% hurt emerging market equities, so investors should be cautious in the near term.”

Over the coming week, Apurva Sheth, Head of Market Outlook at Samco Securities, said: “Given the absence of major domestic events, Indian market sentiment will be influenced by its global counterparts to determine its movement. . Investors around the world will be keeping an eye on China’s inflation figures. Other important factors that can influence the market include oil price volatility and USDINR. Investors should pay attention to stock-specific events.

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