Healthy portfolio and FDI capital inflows boosted India's foreign exchange reserves by $8.895 billion during the week ended September 3. The portfolio equity capital was attracted to India on the prospects of faster economic recovery and revived markets.

Accordingly, the Reserve Bank of India's (RBI) forex reserves increased to $642.453 billion from $633.558 billion reported for the week ended August 27.

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U.S. dollar notes are seen in front of a stock graph in this November 7, 2016 picture illustration.Reuters file

As per the RBI's weekly statistical supplement, India's forex reserves comprise foreign currency assets (FCAs), gold reserves, SDRs, and the country's reserve position with the IMF.

On a weekly basis, FCAs, the largest component of the forex reserves, edged higher by $8.213 billion to $579.813 billion. Similarly, the value of the country's gold reserves rose by $642 million to $38.083 billion.

The SDR value rose by a whopping $29 million to $19.437 billion. In addition, the country's reserve position with the IMF rose by $11 million to $5.121 billion.

As of March 15, India emerged as the fourth largest in the world with forex reserves at $580.3 billion surpassing Russia and behind China, Japan and Switzerland. Moreover, emerging markets have been building reserves to guard against volatility due to Covid aftershocks.

Reserves for India and Russia have plateaued rising for months. India pulled ahead as Russian holdings declined at a faster rate. India's foreign currency holdings fell by $4.3 billion to $580.3 billion as of March 5, the Reserve Bank of India said on Friday, edging out Russia's $580.1 billion pile.

The world's largest forex reserves league table is headed by China, followed by Japan and Switzerland. India's reserves are now worth 18 months of imports have been boosted by massive inflows by FIIs into the stock market and burgeoning FDI.

Rupee Strengthened In 2021

According to a recent report by Acuite Ratings, the Indian rupee has strengthened in 2021 so far on healthy portfolio inflows, and sharp downward adjustment in inflation. "We expect India to post record BoP surplus of $105 billion in FY21, followed by a healthy surplus of $55 billion in FY22.

"While FX intervention from the central bank will continue in FY22, the pace is likely to ease with moderation in inflation. We expect gradual appreciation in the currency to play out with USDINR at 73.0 (with downside risk) in Mar-20 to 71.0 by Mar-21," the report said.