Rupee Holds Steady Against US Dollar In Early Trade Amidst FFI Buying

The Indian currency exhibited a confined trading range on Monday morning, March 11, 2024 as the boost from overseas investment inflows was counterbalanced by a downward movement in domestic stock indices. Foreign exchange dealers noted the rupee gained traction, underpinned by the U.S. dollar's weakness and a decline in crude oil prices. 

At the interbank forex market, the rupee initiated trading at 82.74 per dollar but soon recovered some ground, touching 82.64 against the greenback during early trades, appreciating by 3 paise from its preceding close of 82.67 on Thursday. Forex trading was halted on Friday due to the Mahashivratri festivities.

USDINR 1-Day Price Chart. (Source: TradingView)

Global Cues and Analyst Expectations

The dollar index, a measure of the U.S. currency's strength against six major currencies, witnessed a marginal uptick of 0.02% to read at 102.72. However, Brent crude futures, the global oil price benchmark, declined by 0.67% to record $81.53 per barrel, lending support to the Indian rupee. 

Anil Kumar Bhansali, the Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, projected the rupee to trade within a range of 82.68 to 82.88, exhibiting a slow appreciating tendency, as foreign capital inflows are expected to dominate the trading sessions.

Domestic Equity Markets and Foreign Inflows

On the domestic front, key equity indices witnessed a decline, weighing on the rupee's performance. The benchmark BSE Sensex traded 114.49 points or 0.15% lower at 74,004.90, while the broader NSE Nifty shed 21.60 points or 0.1% to 22,471.95. Countering this negative sentiment, foreign institutional investors emerged as net buyers in the Indian capital markets on Thursday. As per exchange data, these overseas investors pumped in Rs 7,304.11 crore, providing a positive impetus to the rupee's trajectory amid foreign fund inflows.

India's Forex Reserves and Trade Pact with European Countries

The India's foreign exchange reserves witnessed a substantial increase of $6.55 billion, reaching $625.626 billion for the week that concluded March 1st, as per the Reserve Bank of India's report released on Friday, Feb 8th, 2024. This surge followed an earlier rise of $2.975 billion to record $619.072 billion in the preceding week, indicating a strengthening of India's external position. 

At the same time, India linked a comprehensive Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association nations, including Iceland, Liechtenstein, Norway and Switzerland. This mega trade pact has enabled and paved the way for these four European countries to collectively invest $100 billion in India over the next 15 years, potentially boosting the Indian economy and lending further support to the rupee's resilience.

IPO Activity and Market Listings

Bhansali also emphasized on the potent IPO activity, stating, "As many as seven IPOs are out for grabs in this week, while eight firms will list on the bourses in India." This influx of fresh capital and increased market participation could contribute to the overall investor sentiment and potentially influence the rupee's trajectory. As the trading session progresses, global economic indicators, geopolitical developments and domestic factors are kept an eye on so as to gauge the rupee's performance in the coming days.