The Indian rupee on Tuesday rose by 112 paise — its best single-day gain in over five years — to settle at 70.44 against the US dollar as softening crude oil prices eased concerns over India’s current account deficit position and foreign fund inflows to the capital market improved.
Analysts said sustained selling of the US currency by exporters and banks as well as the greenback’s weakness against its key rivals globally ahead of the US Fed Reserve policy decision on Wednesday also helped the domestic unit scale further heights. Tuesday’s 112 paise rise marked the best day for the rupee since September 19, 2013, when it had surged by 161 paise against the US dollar.
The fall in bond yields easing liquidity concerns in the market and bullish trend in the stock market also supported the rupee in maintaining its upward movement. Oil prices fell up to 5.5 per cent on Tuesday, dropping for a third consecutive session as reports of swelling inventories and forecasts of record US and Russian output combined with a sharp sell-off in global stock markets. The fall in oil prices is likely to bring down trade deficit and the current account deficit (CAD). According to commerce ministry data, India’s trade deficit came down to $16.67 billion in November 2018 from $17.13 billion in October this year.
According to Care Ratings, the Indian rupee which had appreciated by 4.7 per cent against the US dollar following the six-month waiver granted by the US government on the Iran sanctions (supposed to set in from November 4, 2018) has now seen a reversal in trend.
The rupee depreciated by 3.4 per cent in the first half of December 2018 from 69.6 on November 30, 2018 to 71.9 on December 14, 2018. The rupee weakened and crossed the 72 mark on two instances in the week ended December 14.
Softening oil prices provide relief to the Indian markets
As volatility in global crude oil price remains the biggest concern for domestic currency and India’s current account deficit, a sharp decline in Brent crude oil price resulted in over 1.5 per cent recovery in rupee value against the dollar on Tuesday. Even as OPEC had announced to cut supply beginning January by 1.2 million bpd, the continued growth in US shale gas production has sent signals in the market that the inventories will only rise and keep oil prices in check. This comes as a big relief for Indian economy as oil forms the biggest component of India’s imports.
Meanwhile, stock markets on Tuesday reversed early losses to end in the positive territory, marking their sixth consecutive gains as firming rupee and sliding crude lifted investors’ sentiment. The benchmark Sensex ended 77 points higher despite losses in information technology and FMCG counters amid weak global cues. Similarly, the broader NSE Nifty edged higher by over 20 points to close above the 10,900-level.
“Markets reversed from the day’s low despite weak global market as oil prices slid further and a drop in bond yield raised investors’ confidence. Global market traded on a negative note due to concerns of slowdown in world economic growth. A strong rupee and fall in yield is easing the liquidity concerns of the market,” said Vinod Nair, head of Research, Geojit Financial Services.
Abhijeet Dey, senior fund manager, BNP Paribas Mutual Fund, said, “On the sectoral front, the media and IT indices suffered sharp losses while most other sectoral indices closed with gains of over 0.50 per cent.”