The rupee strengthened to its strongest level in a month on Tuesday, buoyed by lower crude prices and the return of foreign portfolio investors (FPIs) to the Indian markets.
Traders told Reuters rupee would sustain the current level on inflows but has little upside to make further gains as India's trade deficit widening to an all-time high in July would weigh on sentiment.
India’s trade deficit swelled to a record $31.02 billion in July, as imports of goods surged despite curbs and merchandise exports contracted for the first time in 20 months. July merchandise exports declined by 0.76% from a year ago to $37.24 billion, while imports grew 44% to $66.26 billion during the month because of high commodity prices and a weak rupee
Meanwhile, Indian shares opened slightly higher on Wednesday, with metal, energy and information technology stocks gaining, as investors eye the central bank's policy meeting outcome expected later this week.
The focus is now on three key events scheduled for the week —the Opec+ meeting, the RBI monetary policy committee meeting, and the US jobs report—which may provide further cues for the domestic currency.
The currency crossed the 80 level last month on the back of monetary policy tightening and the consequent FPI outflows from capital markets. India’s widening trade gap and capital outflows have also raised the risks for the domestic currency.
Foreign Portfolio Investors (FPIs) had been selling equities in the Indian markets for the past nine-to-ten months barring the latest buying due to various reasons, including tightening of monetary policy in advanced economies, and rising dollar and bond yields in the US.
After nine months of outflows, foreign institutional investors (FIIs) turned net buyers of Indian stocks in July and August, with purchases of around ₹12,065 crore, contributing to gains in the currency.
(With inputs from agencies)
