An atmosphere of financial trepidation took hold as the Indian rupee fell to a record-breaking slump, registering an all-time low against the coveted US dollar. The economic barometer dipped to 83.54 on Tuesday, beset by a potent mix of escalating Middle Eastern tensions and the continuous withdrawal of foreign portfolio investors (FPIs). Meanwhile, the soaring US bond yields, climbing to a robust 4.66-4.67 percent, further suffocated the already beleaguered rupee.
At the closing bell, the Indian currency had shed 9 paise, descending to an unprecedented low of 83.54 versus the dollar, sinking marginally lower than the prior day’s close of 83.45. The intraday trading saw the rupee scarcely touching 83.55, signaling a tremor in investor confidence. Dilip Parmar, a seasoned Research Analyst at HDFC Securities, captured the sentiment, stating, “The Indian rupee drifted lower amid geopolitical worries and foreign fund outflows. However, the local rupee remained the median performer amid a better macro environment.” He went on to emphasize that a trimmed trade deficit, the prospect of dollar inflows in debt markets, and robust growth momentum have all played crucial parts in buttressing the rupee’s value.
The shadow of conflict stretched further as Iran and Israel’s clash intensified, affecting global investment patterns. Investors flocked towards the relative safety of the greenback, scaling up its demand in the wake of increased hostilities. This shift came in the wake of Iran’s calculated drone and missile onslaught against Israel as retribution for a strike conducted by Israel on April 1, stirring fears of a spiraling conflict between the two nations.
The appetite for the US dollar was further spiked by FPIs, who were consistently divesting from the Indian equity market. The exodus was palpable on Tuesday, recording a net sale of equities amounting to a staggering Rs 3,233.48 crore, hot on the heels of nearly Rs 8,000 crore monetized the previous Monday, as per the data made available by the National Securities Depository Ltd (NSDL).
This sizable sell-off orchestrated by FPIs has been attributed to various factors including an anticipated postponement in interest rate cuts by the U.S. Federal Reserve, alongside revamped scrutiny in light of recent amendments to the tax treaty between India and Mauritius. The protocol changes in the Double Taxation Avoidance Agreement (DTAA) with Mauritius are a strategic initiative by India to prevent treaty misuse aimed at tax evasion or avoidance.
Simultaneously, the dollar index’s surge to a commanding high above $106 further squeezed the rupee, with amplified sell-offs in the capital markets and compounded by concerns regarding the Middle Eastern geopolitical discord. Jateen Trivedi, VP Research Analyst at LKP Securities, remarked on the duress the rupee faced, influenced by both capital market fluctuations and regional instabilities.
Rahul Kalantri, VP – Commodities at Mehta Equities, suggested that we brace for a week of volatility for the rupee amid the unpredictable dollar index. He forecasted a potential trading range for the pair, spanning from 83.22 to 84.05. Looking ahead, HDFC Securities’s Parmar projects a gradual slide for the rupee, potentially reaching the contours of 83.70 to 84, whilst maintaining the critical level of 83.
Amid the currency turmoil, the domestic stock market wasn’t spared. The Sensex fell for the third straight day, concluding on Tuesday at 72,943.68 – a decrease of 456 points or 0.62 percent. Concurrently, the Nifty met with a downturn of 124.6 points, or 0.56 percent, to settle at 22,147.9.
Such distinct financial tremors emphasize the delicate interplay of global politics, investment strategies, and economic indicators in the dynamic theatre of international finance. As the rupee confronts a fluctuating future, market participants and policy makers alike remain vigilant, navigating the unpredictability that defines the essence of global economics.
