Strong FPI inflows, rising foreign currency assets propel forex reserves to record high

During the week ended May 29, FPIs invested a net of Rs 5,480 crore into Indian equities. With foreign investors looking to buy stake in Indian companies, the FDI inflow has also stood strong leading to a rise in forex reserves amidst the pandemic.

As a result of rising inflow of funds and growing forex reserves, the rupee has also strengthened against the dollar. While it close at 75.56 on Friday, it rose 34 paisa in the week ended May 29 against the US dollar.

Experts say in times of dwindling economic activity and growth, the rising forex reserves provide a lot of strength as they now cover one year of import expenditure.

In his monetary policy statement on May 22, RBI Governor Shaktikanta Das said, “India’s foreign exchange reserves have increased by $ 9.2 billion in 2020-21 so far (up to May 15) to US$ 487.0 billion — equivalent to 12 months of imports.”

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Total value of the gold reserves continued to decline and were at 32.682 billion, lower by $97 million as compared with the previous week, the central bank said.

While the pandemic has pushed investors to seek refuge in safer investment destinations and instruments, leading to outflow of funds in March and April, there had been a relative calm on that front in May. The continuing low levels of Brent crude oil prices have also benefitted India and its foreign exchange reserves.

Earlier, India’s foreign exchange reserves had a smooth run for nearly six-months as they rose week-on-week between September 20, 2019 and March 6, 2020.