nah nah alex...
small misunderstanding/miscalculation...
dumdum has chartically shown the BIG problem FIIs are facing over here in Indian market... FALLING RUPEE is adding to their woes besides this big time bearish condition.
Let's take your illustration:
An FII wanted to invest Rs 1 Lac six months back in Nifty. He had to shell out $ 2500 (at the rate mentioned by you Rs 40 to a $)
Now, after six months, if your are assuming that Nifty did not move at all - so, market value is still equal to initial investment value ie Rs 1 lac..
If the FII wants to sell this investment, then he will get back Rs 1 Lac but in dollar terms, he will be getting only $ 2222 (at rate of Rs 45 to a dollar)..
HE HAS LOST MORE THAN 10% (and not gained) OF HIS INVESTMENT IN DOLLAR TERMS & THAT'S WHAT THE LOWER CHART IS SHOWING CORRECTLY..
Because of liquidity / solvency problems back home, FIIs are compelled to sell their investments in emerging markets. But, here, it's proving to be a DOUBLE WHAMMY for them.
Now, their $ 2500 / Rs 1 Lac is now having market value of Rs 50000 (assuming 50% correction) but in $ terms it is equal to $ 1111 (50000/45)
ie LOSS of more than 55% of initial invt.
ie 10% (as shown in prev paragraph) more than what DIIs have lost here.
those who earn or invest in dollars are happier lot (eg IT cos, oil marketing cos., any relative working abroad, and sending money back to India)
for example, I invested in Nasdaq Rs 1 lac / $ 2500 six months back. If, as per your illustration, the index did not move at all after 6 months, and I sell that investement, then I will be getting back $ 2500 back... but on converting to rupees, I get Rs 1,12,500 (2500 * 45 conv rate).. ie 12.5% profit, even though the index yielded zero return...
FIIs are not selling because of 10% profit in currency conversion - it's actually a loss...
their fear is more bearish conditions (ie nifty testing 3800) + double whammy of rupee falling more possibly to 50 (ie $1 = Rs 50).. just imagine their loss then a that time.. so instead of waiting for such a scenario, they are thinking to let's get out at a comparatively smaller loss in $ terms..
that's why some local mutual funds, which invest in global stocks like Principal, Fidelity, Franklin, have given better returns vis-a-vis their invetsments in Indian markets, even though there has been a global meltdown... (better does not mean more profit... it can also mean less loss)
small misunderstanding/miscalculation...
dumdum has chartically shown the BIG problem FIIs are facing over here in Indian market... FALLING RUPEE is adding to their woes besides this big time bearish condition.
Let's take your illustration:
An FII wanted to invest Rs 1 Lac six months back in Nifty. He had to shell out $ 2500 (at the rate mentioned by you Rs 40 to a $)
Now, after six months, if your are assuming that Nifty did not move at all - so, market value is still equal to initial investment value ie Rs 1 lac..
If the FII wants to sell this investment, then he will get back Rs 1 Lac but in dollar terms, he will be getting only $ 2222 (at rate of Rs 45 to a dollar)..
HE HAS LOST MORE THAN 10% (and not gained) OF HIS INVESTMENT IN DOLLAR TERMS & THAT'S WHAT THE LOWER CHART IS SHOWING CORRECTLY..
Because of liquidity / solvency problems back home, FIIs are compelled to sell their investments in emerging markets. But, here, it's proving to be a DOUBLE WHAMMY for them.
Now, their $ 2500 / Rs 1 Lac is now having market value of Rs 50000 (assuming 50% correction) but in $ terms it is equal to $ 1111 (50000/45)
ie LOSS of more than 55% of initial invt.
ie 10% (as shown in prev paragraph) more than what DIIs have lost here.
those who earn or invest in dollars are happier lot (eg IT cos, oil marketing cos., any relative working abroad, and sending money back to India)
for example, I invested in Nasdaq Rs 1 lac / $ 2500 six months back. If, as per your illustration, the index did not move at all after 6 months, and I sell that investement, then I will be getting back $ 2500 back... but on converting to rupees, I get Rs 1,12,500 (2500 * 45 conv rate).. ie 12.5% profit, even though the index yielded zero return...
FIIs are not selling because of 10% profit in currency conversion - it's actually a loss...
their fear is more bearish conditions (ie nifty testing 3800) + double whammy of rupee falling more possibly to 50 (ie $1 = Rs 50).. just imagine their loss then a that time.. so instead of waiting for such a scenario, they are thinking to let's get out at a comparatively smaller loss in $ terms..
that's why some local mutual funds, which invest in global stocks like Principal, Fidelity, Franklin, have given better returns vis-a-vis their invetsments in Indian markets, even though there has been a global meltdown... (better does not mean more profit... it can also mean less loss)
you are right,in $ term it will be erosion of fii capital.
