Mumbai/Delhi : The rupee fell to 77.46 against the dollar on Monday after hitting a record low of 77.52 in intraday trading as foreign investors continued to pull money from Indian assets as the dollar strengthened after the US Federal Reserve raised interest rates .
Analysts said the Indian currency’s decline should not be viewed in isolation as the Chinese yuan and the Japanese yen, along with other major currencies, weakened against the dollar. Though India is more vulnerable than other countries as it is dependent on imports to meet around 85% of its oil requirements, the situation has been worsened by the rise in crude oil prices.
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“When Asian currencies move, especially the Chinese yuan, the Indian rupee tends to move together,” said Sajal Gupta, senior vice president and head of foreign exchange and rates, Edelweiss Securities.
Over the past few days, US bond yields have touched 2018 highs, and the dollar index has soared to a 20-year high following strong US jobs data for April, prompting hopes of more rate hikes by the Fed. Is.
Most experts now expect the rupee to trade in the range of 78-79 against the dollar in the coming months. While some analysts believe that the Reserve Bank of India (RBI) can intervene to contain volatility, others said it cannot do it as frequently as before.
“For the coming week, the rupee needs to retest the 77.10 level to see a recovery towards 76.80/76.70 again. Till then the bias will remain negative, and the currency will see further downside towards the 77.80 level,” said analysts at Emkay Global Financial Services.
“RBI has long positions in reserves as well as forwards, and most importantly, it has indicated that the liquidity of the rupee is sufficient. This means that if they sell dollars in the spot market and increase the liquidity of the rupee, it will be in line with their policy,” said Anindya Banerjee, vice-president, currency derivatives and interest rate derivatives at Kotak Securities.
RBI’s foreign exchange reserves fell below $600 billion for the week ended April 29, data from the central bank showed.
According to Kunal Sodhani, Assistant Vice President (Global Trade Center), Shinhan Bank India, several intervention attempts were made in the past to keep the rupee below 77 amid extreme volatility. Sodhani said the central bank’s foreign exchange reserves have seen a decline of about $44 billion since the beginning of this year.
Meanwhile, the volatility in the Indian stock markets continued on Monday as well. Nifty and Sensex closed with a fall of 0.67%. The pressure on the broader markets was also intense. The S&P BSE Midcap Index and S&P Large-Small Index were down 1.89% and 1.67%, while the S&P BSE Large-Cap Index was down 0.88%. The broader markets are expected to remain under pressure. Overall, the risk-off sentiment in the equity market is being led by rising crude oil prices, sustained selling by foreign portfolio investors, hike in interest rates in major economies, and the now-record low of the rupee.
“We expect this trend to continue, with large-caps expected to outperform mid-caps and small-caps,” said Bharat Arora, an analyst at Ambit Capital. Others said tough stance by the US Fed, rate hike by the RBI, the Bank of England and the Australian central bank reduced the risk appetite of investors.
“We don’t know how long this correction will last. Nifty declined 3.9% last week, but investors should not make the mistake of buying aggressively on this decline, assuming that there is a lot of correction in prices,” said Geojit Financial Services VK Vijayakumar, Chief Investment Strategist, said.
Most global stocks also fell on Monday. Other Asian indices such as the Taiwan TAIEX, Nikkei, Jakarta Composite and Hang Seng fell 2.19-4.42% on Monday, with only the Shanghai Composite Index rising 0.09%.