Expert warns of potential rupee fall if a certain level is breached

The week proved extremely difficult for the Indian market. Following Monday, the Indian market experienced another sharp decline. During intraday trading, the BSE Sensex fell by 1,147.15 points, representing 1.58%, reaching 71,333.14, while the NSE Nifty50 decreased by 390.40 points or 1.73%, dropping to 22,230.05. Although some recovery was observed in subsequent trading hours, by the market close, the Sensex lost 570.59 points, settling at 71,909.70, and the Nifty declined by approximately 200 points to 22,421.

The strongest sell-off was recorded in small and mid-cap indices, which fell by more than 1%. Market volatility, measured by the India VIX index, increased by 13.82%, reaching the level of 15.36.

The total market capitalization of companies listed on the BSE decreased by approximately 10.08 lakh crore rupees, falling from 471.86 lakh crore rupees in the previous session to 461.77 lakh crore rupees due to a significant drop in stock prices. However, after the market closed, there was a slight recovery, and the total losses amounted to 6 lakh crore rupees, bringing the BSE capitalization to 466 lakh crore.

One of the factors contributing to the decline is active selling by foreign investors, who are withdrawing funds from the Indian market. These investors sold stocks worth over 10,148 crore rupees on September 30th. Over the last two trading days of September, foreign investors sold stocks worth over 20,000 crore rupees. In contrast, domestic institutional investors (DIIs) purchased stocks worth 11,271 crore rupees on Wednesday.

Another influencing factor was the rise in the yield of US 10-year bonds to 5.3%, making them more attractive for investment and prompting many investors to consider allocating funds to this segment.

Furthermore, the increase in crude oil prices put pressure on the market. Brent Crude futures prices for December delivery rose from $96.55 per barrel at 11:03 AM to a peak of $100.20 per barrel by 1:07 PM.

The Indian currency is also under constant pressure, falling below the 96 level against the dollar. In the latest check, the rupee reached its lowest level at 96.19 against the US dollar. The rupee's fall was caused by the continued withdrawal of funds by foreign funds and high crude oil prices, which were the main reasons for the market sell-off on Thursday.

The Indian Rupee showed strengthening on Monday, halting its downward trend against the dollar. If the rupee closed at 95.96 in the previous trading session, it reached 95.81 on Monday, representing a gain of 15 points. The rupee was supported by the decline in crude oil prices and expectations of negotiations between the US and Iran. Furthermore, growth in the domestic stock market and weakening US Treasury yields contributed to support for the Indian rupee.

In the interbank Forex currency market on Monday, the rupee opened at 95.86. During trading, it strengthened its position and reached a daily high of 95.72, but later the rise slightly subsided, and the rupee closed at 95.81. Previously, on September 18, the rupee closed at 95.96, weakening by 7 points. Thus, the rupee's movement on Monday not only compensated for Friday's fall but also slightly strengthened its position against the dollar.

According to Forex traders, the drop in crude oil prices after high levels proved to be a positive factor for the rupee. India imports a significant portion of its crude oil. Consequently, easing oil prices may reduce pressure on the country's import bill and lower demand for the dollar. The rupee benefited precisely from such expectations.

Anuj Choudhary, an analyst at Mirae Asset Sharekhan Research Department, noted that the fall in crude oil prices from high levels and hopes for negotiations between the US and Iran improved global risk sentiment. This provided slight support to the rupee. He also added that the expected increase in crude oil supplies from Saudi Arabia might keep pressure on prices, which could be positive for the rupee.

The expectation of possible negotiations between the US and Iran also played a role in the rupee's strengthening. If tensions between the two countries decrease, it may reduce investor anxiety in the global market. However, risks in this area have not completely disappeared. According to Anuj Choudhary, reports that Iran shot down a US drone in the Strait of Hormuz could again affect market risk sentiment. Such events could lead to an increase in crude oil prices, which in turn would affect the rupee.

The Dollar Index stood at 100.32 on Monday, showing a rise of 0.10 percent. Despite this, the rupee demonstrated strengthening. Meanwhile, Brent Crude futures fell by 2.08 percent, reaching $101.71 per barrel. This decline in crude oil prices provided important support for the rupee. Anuj Choudhary forecasts that the spot USD-INR rate may remain in the range of 95.55 to 96.05 in the future.

The Indian stock market also saw good growth on Monday. The Sensex index rose by 564.03 points, closing at 74,858.99. At the same time, Nifty reached 23,414.30, increasing by 67.90 points. Foreign investors were also observed buying shares in the stock market. According to exchange data, Foreign Institutional Investors (FIIs) bought equity capital on a net basis worth ₹599.54 crore in the Indian stock market on Friday. Positive sentiment related to the growth of the domestic market and foreign investment also helped create a favorable atmosphere for the rupee.

However, the situation with foreign exchange reserves was somewhat different. According to data published by the Reserve Bank of India (RBI) on September 18, over the week ending September 11, the country's foreign exchange reserves decreased by $4.924 billion, amounting to $780.782 billion. During this period, both foreign exchange and gold reserves were recorded as declining. Thus, despite the rupee's strengthening on Monday, the reduction in foreign exchange reserves is a metric that the market will monitor.

In upcoming trading sessions, the rupee's movement will be determined by several global signals. Primarily, attention will be paid to crude oil prices; if prices continue to fall from high levels, it could ease the situation for the rupee. Additionally, key factors for the rupee's movement will be the situation regarding negotiations between the US and Iran, news related to the Strait of Hormuz, and the dollar index. Currently, the picture on Monday looks positive for the rupee.