2007 FII inflows hit $16 billion

With FII investments continuing unabated, market dealers expect the rupee to test the 39 to the dollar level soon. Despite heavy dollar buying by the Reserve Bank of India (RBI), the rupee closed at 39.30 to the dollar today. The rupee has now appreciated by 12.6 per cent in 2007, making it the best performing currency versus the dollar in Asia.

The RBI, which will unveil its quarterly monetary policy later this month, has been buying dollars in the currency market to help maintain the competitiveness of India’s exports. The RBI bought $38.1 billion in the first seven months of 2007 to check the rupee’s rise. “The stock market rally is purely driven by FIIs. Once the FII buying momentum slows down, the market will drift downwards,” said BSE dealer Pawan Dharnidharka.

It is not India alone that is hitting new peaks. Hong Kong’s blue chip Hang Seng Index rose 1.97 per cent to 29,133.02, surpassing the 29,000-point level for the first time. Hong Kong’s benchmark index is likely to test the 30,000-level soon, but volatility will increase in the short term as share prices have become increasingly detached from fundamentals.

On the other hand, China’s benchmark Shanghai Composite Index rose to a fresh record close as strong earnings expectations spurred buying of energy and banking shares. The Shanghai Composite Index rose 2.5 percent to 5,913.23, its fourth record close in a row this week.

In India, the Sensex has gained 20 per cent since US interest rates were cut on September 18, and has risen by more than 33 per cent since August 21, when it had ended at a three-month closing low.