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Rupee at its two-year low as Sensex goes south

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New Delhi: Bombay Stock Exchange (BSE) Sensex was trading at 25,663 down 223 points whereas NSE Nifty was at 7,799, down 65 points at 9:45 AM declining over 200 points as Nifty fell lower than the 7,800 level.

BSE Mid-cap Index is trading down at 0.55% – 10,990, however BSE Small-cap Index is trading down at 0.54% – 11,569.

All BSE sectors are showing impuissance.

The Indian rupee opened up poorer by 30 paise at 66.91/$ in early trade on Friday. On the domestic front, Nikkei/Markit India Services Purchasing Managers’ Index (PMI) the assessment showed that India’s services productiveness clamber throughout November as companies continued to be negative about commercial predictions.

Services PMI index fell severely to 50.1 from October’s level of 53.2. Adding to the dip, market retained on the reoccurrence of the opinion of a US Fed rate hike. The Fed Forward rate turns are now hinting at a 79 percent possibility of 25 basis points moved rates.

The Sensex drop off affected the Indian rupee to a two-year low of 66.99 against the dollar. The Reserve Bank Governor Raghuram Rajan is aimed at fighting the crunch-like situation.

The plan for the improvement is chalked out on the basis of these points.

The latest feebleness of rupee has occurred due to external reasons, in specific, because of the expected rise of US Federal Reserve rates for the first time in the last 10 years.

The betterment of euro currencies has also affected the rupee as it is closely tracked by India.

Trading pressure on the Indian market is as well contributing to the stress as the sectoral indices on the BSE trading is negative. Some of the important service providers have seen a low of 1 percent and 1.5 percent, specifically the Tata Consultancy (TCS), ICIC Bank and Infosys.

One of the recent obstruction is caused by the floods in Chennai as most Indian IT companies have 10-30 percent workplace based there.

Also, the S&P 500 suffered its biggest dip since late September on December 4 due to the dissatisfied performance of European Central Bank for greater stimulus.

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RBI May Recoup Reserves, Strong Inflow of Foreign Funds And Benign Oil Prices Strengthening Indian Currency

A major factor supporting the rupee is the strong prospect of better fund flows from abroad.

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Experts now see a chance for the RBI to recoup the reserves it spent in 2018 defending the rupee. Pixabay

A strong inflow of foreign funds and benign oil prices have strengthened the Indian currency but what has worked best for the rupee is the fading impact of war hysteria. Experts now see a chance for the RBI to recoup the reserves it spent in 2018 defending the rupee.

Putting a number to this, Gurang Somaiya, currency analyst at Motilal Oswal, said: “It is possible that RBI may limit some of the appreciation and recoup some of its lost reserves… but it may only come if the rupee strengthens to around Rs 68.20 a dollar.”

Explaining the factors at play, Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, said: “Post-Abhinandan (shooting down of the IAF pilot), geopolitical risk has subsided which has boosted investor sentiments.”

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The decline in crude oil, which accounts for a large import bill for India, directly affects the exchange rates.
Pixabay

Banerjee added that the gains of the rupee will help the Reserve Bank of India recoup reserves which it lost last year in a bid to arrest its fall.

“The rupee appreciated and closed at 70.14 for the last week on the back of strong flows and fading impact of war hysteria,” said Sajal Gupta, Head Forex and Rates, Edelweiss Securities.

In addition, Gupta said that some “big flows are lined up next week. Maybe Arcelor Mittal money can hit the Indian markets which can lead to some more appreciation towards 69.50 unless the RBI intervenes”.

However, the rising dollar index is causing nervousness and any breakout may lead to a reversal in the rupee’s trend, said Gupta. Somaiya said that RBI may choose not to intervene as the central bank’s prime aim was to arrest volatility.

“Yes the rupee is inching below the 70-a-dollar mark but then the (general) election can cause massive volatility. Also, it is seen that a lot of central banks are getting into a dovish stance owing to the fears of global slowdown.”

The RBI had to stop the slump in the rupee late last year after it touched an all-time high of 74.47 on October 11 following the rising crude oil prices.

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However, the rising dollar index is causing nervousness and any breakout may lead to a reversal in the rupee’s trend, said Gupta. Somaiya said that RBI may choose not to intervene as the central bank’s prime aim was to arrest volatility. Pixabay

The Brent Crude touched $86-a-barrel mark in early October but started to ease following the US decision to exempt 8 countries, including India and China, to continue buying oil for six months from Iran despite sanctions.

The decline in crude oil, which accounts for a large import bill for India, directly affects the exchange rates.

A major factor supporting the rupee is the strong prospect of better fund flows from abroad.

Also Read: The Dining Table Starts Turning To The DIEning Table, Is Eating Alone Healthy?

“Inflows into India have clearly turned positive since the end of January. The flows in February at Rs 17,720 crore is the highest since November 2017. The trigger for this inflows is the dovish statement that came from the Fed at the end of January,” said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

India’s foreign exchange reserves stood at $401.78 billion as against $393.13 billion in November last year. As the data suggests, with improving macros, the forex is already on the recovery path. (IANS)