Prompted by the falling rupee, the FIIs were net sellers of equities worth over Rs 2,250 crore in October, according to sebi. Foreign broking firms, with their forecasts of an overheated Indian economy, aided the general gloom. UBS Securities said in a report in end-October: "High growth and rising external deficits should continue to put pressure on the rupee, which could in turn lead to self-reinforcing capital outflows from equity and cash markets, forcing the currency down further." Added JM Morgan Stanley: "The virtuous cycle of strong flows, low rates, rising consumption, higher growth and strong corporate fundamentals will likely end."
Indian experts disagree, strongly. "No way," says Dharmakirti Joshi, senior economist with CRISIL, "the India story is still strong and moving investor hearts. As a result, the long-term tendency of the rupee is to appreciate." Clearly, the recent gyrations of the rupee are a result of allowing market forces to take over, especially the build-up of a current account deficit, and partly owing to build-up of seasonal expectations like the arrival of harvests, festival demand and FII profitbooking. "It's also a way of the RBI to test its resilience," feels Kanhaiya Singh, senior economist with NCAER.