Stock Market and Currency Movement - Indian Perspective

On July 25, 1990 Sensex touched a milestone mark of 1000, 17.5 Rupees sufficed to buy 1 Dollar at that time, Sensex seemed to like to be a deer chased by the tiger i.e investors and Sensex touched the magical figure of 4000 just at the arrival of the spring i.e in March 1992, a whopping gain of 300% in over just 18 months, but contrary to the mass opinion that gains in stock markets lead to gains in currency as foreign investors would be lapping the listed equities at whatever price they get, the Indian currency Rupee depreciated against the Dollar and against every 28.37 Rupees 1 Dollar could be bought in March 1992, The Indian equity markets opened for the Foreign Investors in 1992 and celebrating the event the Sensex rallied from 2000 to 4000 from January 15, 1992 to March 30, 1992 i.e 100% within 2 months, your guess is my guess, you must be expecting that rush of the foreign investors pulled the markets and so Rupee might have appreciated against the Dollar, but contrary to our opinion while in January 1992 25.86 Rs fetched 1 Dollar, the rush of the foreign investors could not the stop the rupee from depreciating and 28.37 Rupees by an Indian Importer could purchase goods worth 1 Dollar, i.e while foreign investors were lapping Indian Equities they were hedging there positions by going short the Rupee and buying Dollars, or there were many other traders who were shorting the rupee and going long the dollar.

Stock Market and Currency Movement - Indian Perspective contd

The economic liberalization led to growth and India started having a place in the top growing countries of the world, Big time Fund Managers with billions of funds at disposal started mentioning India as one of there favorite money parking destination, again the facts about the movement of the currency don’t match the theory the analysts have on movement of currency, while India was growing the Indian currency was depreciating against the dollar and by January 2000, 43.58 Indian Rupees could fetch 1 Dollar, in the meantime Sensex which was at 4000 in 1992 could not keep the up the tempo which it had maintained in the period between 1990 -1992 and was trading at just 6k in Jan 2000, The burst of technology bubble saw the world markets sinking, and Sensex too could not hold onto the gains which it had accrued in the last 8 years and by 2003 the Sensex lost all the gains it made in the 8 years from 1992 to 2000 and was trading at 3000 i.e 25% loss in 8 years, the new money printing presses opened by Alan Greenspan (the Fed Chairperson) saw starting of a new bubble in United States, and going the theory that is US sneezes Emerging Markets catch cold, Is US Smiles the Emerging Markets should have a laugh, so the Sensex returned to its exuberant speed that it first saw in 1990 -1992 and this time it traded at 21,000 by the close of year 2007, well this rush of foreign investors who were selling the Japanese Yen and investing the money which they literally got at 0% in the high yielding but risky emerging markets, could not make the Indian currency appreciate to a level where it was when the doors of Indian equity markets were opened for Foreign Investors, well the rush of the foreign investors could only do as little favor to the Indian that now 38 Rs were required to purchase 1 Dollar i.e while the Indian Sensex returned 500% gains for the Foreign Investors who purchased in 1992, the Indian currency halved there profit by depreciating 50% in value.

In the next few posts we would see How the Chinese growth story of 10% made its impact on the Yuan, we will also have a look at how the deflation in Japan created a movement in Yen. And then we will try to analyze how the dollar is likely to move if it is going to follow history.