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Even as the Sensex recovered 300 points in intra-day trading to close 159 points lower at 16,835.56 on Monday, foreign investors continued their selling spree on Indian markets. After investing Rs 2,667 crore in the secondary market in April, foreign institutional investors have pulled out Rs 5,856 crore in May so far.On Monday, FIIs pulled out Rs 1,224 crore from the stock markets though losses were capped by Larsen & Toubro's forecast-beating quarterly earnings and recovery in European shares. The FII outflow is considered temporary as foreign investors are likely to step up investments in strong emerging markets like India.The FII pullout was one of the reasons for the fall in the rupee as well. The rupee fell to its weakest level in nearly two and half months on Monday as sovereign debt worries in the euro zone sent the single-currency to four-year lows. The Indian currency closed at 45.62/63 per dollar after hitting 45.77, its weakest since March 5. It dropped 41 paise from Friday's close of 45.21/22.According to wire reports, the euro fell to a four-year low on Monday on sovereign debt worries and fears that planned belt-tightening measures will hurt euro zone growth, fuelling concerns the single currency may face a free-fall. The euro and sterling's drop against the dollar had its impact on the rupee. The rupee's fortunes are closely linked to these foreign fund flows and the unit is down 2.8 per cent so far this month, trimming its gains in 2010 to just 2 per cent. Citigroup said in a research note they expect a further rise in capital flows to emerging economies with high growth potential as the euro zone fiscal crisis may force the European Union and the US Federal Reserve to hold policy rates longer.HDFC Bank said the rupee is expected to remain very responsive to developments in the global risk sentiment. The USD/INR pair could head lower in the near-term as risky assets rally in response to the EU bail-out package, but global growth concerns could restrict any major downward move.
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