While domestic investors are rejoicing over the smart gains made by the Indian equity markets, foreign institutional investors are relatively more happy. This is thanks to the benchmark index, S&P BSE Sensex, and the broader market indices gaining more in dollar terms on the back of an appreciating rupee.

Till date in calendar year 2017, the S&P BSE Sensex is up 11.6 per cent, but in dollar terms (S&P BSE Dollex 30) the gain stands at 18 per cent. Similarly, the S&P BSE 100 and the S&P BSE 200 have risen around 14 per cent each, but the respective indices in dollar terms have given even higher returns in the range of 20-21 per cent.

The rupee hit a one-and-a-half-year high on Friday on expectations of faster pace of reforms following Bhartiya Janata Party’s win in the Uttar Pradesh election, fading effects of demonetisation, strong economic growth prospects and robust inflows of foreign money. Intraday, the rupee strengthened to as high as 64.16 a dollar on Friday, its highest since August 2015. It closed at 64.26 to the dollar, compared with the previous close of 64.52.

Following the announcement of the Union Budget 2017-18 on February 1, foreign institutional investors have been buying Indian equities as well as debt.

Though the outlook on the rupee remains bullish among emerging market currencies, especially after the RBI expressed stronger growth expectations in FY17 and continuation of the government’s reform process, experts say nervousness towards performance of corporates in the March quarter, recent geopolitical tensions and new tax treaty beginning this financial year could impact flows putting a cap on markets’ upside or the rupee’s gain in the short term.