Key Points
- 01Rupee seen opening around 94.70 after 94.74 close
- 02Foreign investors bought over $700 million of equities Tuesday
- 03Equity inflows over three sessions total about $1.5 billion
- 04Indian stocks have gained 5% in the last four sessions
Rupee recovery supported by flows and weaker dollar
The Indian rupee’s ongoing recovery is expected to gain further support from renewed equity inflows and a softer US dollar. Traders see the currency opening around 94.70 on Wednesday, compared with its previous close at 94.74, as sentiment improves on the back of increased foreign investment and changing global risk positioning.
The dollar index (DXY) has slipped 0.3% as investors adjust positions for a potential favourable outcome for the Democratic Party in the US midterm elections. This easing in the dollar has reduced pressure on the rupee, adding to the support provided by capital inflows into Indian markets.
Strong foreign equity inflows into India
Foreign investors purchased more than $700 million of Indian equities on Tuesday, extending a recent buying streak. Over the past three sessions, cumulative foreign equity purchases have reached about $1.5 billion, providing a key underpinning for the rupee’s recovery.
Expectations that India may cut or scrap long-term capital gains tax for foreign investors have further lifted buying interest. These tax expectations are adding to the appeal of Indian assets, contributing to greater portfolio inflows that support the currency.
Equity market performance and sector rotation
Indian equities have rallied 5% over the last four sessions, helped by an apparent rotation from AI-focused trades into broader markets such as India. The recent weakness in AI-led stocks has encouraged some reallocation of capital, with Indian markets viewed as offering a degree of hedge in the shifting environment.
Despite this recent rally, Indian equities had previously underperformed for several months as AI-related trades diverted foreign capital to other markets. The latest inflows and price gains indicate a partial reversal of that trend, aligning equity performance more closely with improving currency dynamics.
Regional and global market backdrop
While the rupee and Indian equities show signs of improvement, broader regional moves remain subdued. Asian currencies have had a muted reaction, and regional equity markets have extended losses, following declines in US equity futures.
US Treasuries have also fallen amid investor positioning around the US election results and the prospect of a Democratic Party momentum in the midterms. These cross-asset moves frame the backdrop against which India’s currency and equity markets are attracting renewed foreign interest.
Key Takeaways
- 01The rupee’s expected firm opening reflects both improved foreign equity inflows and a modest decline in the dollar index (DXY).
- 02A multi-session wave of foreign equity buying has become a central support for India’s currency and equity markets.
- 03Shifts away from AI-focused trades and possible tax changes for foreign investors are reshaping capital flows into India.