The share sales by overseas investors may have been intensified by the rout in Adani stocks, analysts said.
The foreign currency stockpile shrank $8.319 billion in the week to February 10 to $566.948 billion, central bank data showed. This is the biggest fall after April 1, 2022.
Foreign currency assets fell by $7.108 billion to $500.587 billion, while reserves held in gold depleted by $919 million to $42.862 billion.
Improved US job data also raised anticipation for further increase in benchmark rates by the Federal Reserve, putting more pressure on the rupee against the dollar. This prompted the central bank to sell dollars from its stockpile to help moderate the pace of rupee depreciation, forex dealers said.
Data showed that foreign investors withdrew in excess of $4 billion from Indian equities in the past one year to February 10. Indian equity gauges have lately trailed those of neighbouring China, which is drawing overseas portfolio investment funds after it decided to lift Covid curbs and ease restrictions on personal mobility and business operations.
“Rising inflation, US bond yields, and the dollar index are once again creating a lot of uncertainty among the investors,” said Amol Athawale, an analyst with Kotak Securities.Selling by foreign portfolio investors in the local equity market led to depreciation of the rupee to 82.82 against the dollar at the end of Friday’s trade, compared with 81.82 per dollar two weeks ago, even as the country’s trade deficit is seen at a one-year low of $17.75 billion.
“The US market is facing an unfavourable combination of higher-than-expected inflation and a stronger job market. The Producer Price Index in the US came in at 6%, in contrast with the expectation of 5.4%. This suggests that interest rates have not yet peaked and will remain elevated for a long period,” said Vinod Nair, head of research, Geojit Financial Services.