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Modi effect: Forex reserves up $11 billion since April

India's forex reserve rose by close to $11 billion so far this fiscal on the back of massive inflows from overseas investors, who pumped in dollars into the domestic market on expectation of a strong and stable government under Narendra Modi.
The foreign exchange reserve stood at $314.92 billion as of 16 May, the highest since October 2011 when it was $320.39 billion, according to the RBI data.Foreign currency assets (FCAs), the main constituent of the reserves, also rose around $12 billion to $287.816 billion in the period from March end to 16 May.

FCAs, expressed in dollar terms, include the effect of appreciation/depreciation of the non-US currencies such as the euro, pound and yen held in reserves.The rupee has appreciated around 3 per cent in the last fortnight, riding high on expectations of a slew of reforms from the incoming government, to end at 58.52 against the dollar on 23 May.
Some analysts feel RBI's likely intervention so far to minimise volatility on account of sudden inflows from FIIs also helped in building the country's reserves.

A report by Bank of America Merrill Lynch (BofA-ML) has estimated that the RBI will need to raise $80 billion just to maintain import cover.
BofA-ML believes that in the current scenario, the central bank does not need to sterilise cost of large-scale forex intervention. ‘We think it is a long way off from sterilisation in the first place,’ the report said.

The report, however, said in FY15, the central bank will buy around $33.9 billion of foreign exchange. ‘As a result, the RBI will likely need to do an OMO worth $10 billion rather than sterilise forex intervention.’

BofA-ML believes that sterilisation costs should come off in the future as the interest rate cycle peaks off and the US rate cycle bottoms ahead.
Meanwhile, reports show that FIIs have pumped in over Rs 14,000 crore in Indian stocks so far this month.

Foreign Institutional Investors (FIIs) purchased shares worth Rs 84,777 crore and sold equities amounting to Rs 70,553 crore, a net inflow of Rs 14,224 crore ($2.4 billion) from May 2-23, according to data from the Securities and Exchange Board of India.

At the same time, foreign investors have infused a net amount of Rs 12,037 crore ($2.03 billion) in the debt market.Given the decisive political mandate, analysts believe that Indian markets have the potential to get more inflows.

FIIs, the main drivers of the equity market, have helped push up the BSE benchmark index, Sensex, by over 10 per cent so far in May.
The strong inflows in the recent months have taken the net investment by FIIs to Rs 46,000 crore in Indian equities so far this year, and over Rs 38,000 crore in the debt market during the period taking the total to Rs 84,000 crore.They had invested Rs 9,602 crore in Indian stocks in April, compared with Rs 20,077 crore in March, Rs 1,404 crore in February and Rs 714 crore in January.Currently, there are 1,709 registered FIIs in the country, along with 6,418 sub-accounts. 
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