India’s forex reserves hit historic high of $642.631 billion, indicates growing

India’s foreign exchange reserves surged by $140 million to reach a historic high of $642.631 billion as of March 22, the Reserve Bank of India said. This marks the fifth consecutive week of a notable increase in the country’s overall reserves.

Reserves had seen a significant rise of $6.396 billion, reaching $642.492 billion, the week before as well. Higher FPI flows is one of the key triggers for the higher reserves and is also indicative of growing foreign investor confidence in Indian markets.

Speaking on the FY24 FPI flows and what it indicates, Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “The resilience of the Indian stock market and the improving macros of the Indian economy forced the FPIs to turn buyers in India. FPIs were big buyers in capital goods, automobiles, financials, telecom and real estate. They were sellers in IT. FPI inflows into debt has been steady this year and has reached an impressive figure of Rs 55857 crores in 2024 so far. This trend is likely to continue.”

Alok Agarwal, Head Quant & Portfolio Manager, Alchemy Capital Management added that, “FPI inflows in FY24 remained robust, indicating continued foreign investor confidence in the Indian market. Additionally, the emergence of retail investors in the Indian stock market has played a crucial role in counterbalancing the impact of FPI outflows, with domestic mutual funds and direct retail investors significantly increasing their free float ownership of NSE listed companies, thereby reducing the influence of FPI flows. India is one of the rare large economies with double-digit nominal GDP growth, double-digit corporate earnings growth, and double-digit ROE. We expect FPI flows to remain strong and would expect them to resume increasing their stake in Indian markets.”

Some of the key highs that foreign reserves have hit in the recent past include the September 2021 peak, when India’s foreign exchange reserves peaked at $642.453 billion. The reserves had seen a setback as the central bank utilized them to safeguard the rupee amidst pressures stemming largely from global developments since the previous year.

The RBI frequently intervenes in the market to manage liquidity, which may involve selling dollars, in order to prevent a significant depreciation of the rupee.

According to data released on Friday, for the week ending March 22, the foreign currency assets, a pivotal component of the reserves, saw a slight decline of $123 million, reaching $568.264 billion. These foreign currency assets encompass the impact of appreciation or depreciation of non-US units such as the euro, pound, and yen held within the foreign exchange reserves.

Additionally, the RBI highlighted that gold reserves surged by $347 million to reach $51.487 billion during the week.

On the other hand, the Special Drawing Rights (SDRs) experienced a decline of $57 million, reaching $ 18.219 billion, as per the apex bank’s statement.

Furthermore, India’s reserve position with the International Monetary Fund (IMF) also seen a decline of $27 million at $4.662 billion in the reported week, as indicated by RBI data.