Rupee hits historic low amid local stock outflows

The Indian rupee weakened to a historic low on Monday, pressured by sustained outflows from local stocks, even as other Asian currencies gained from a softer U.S. dollar. The currency slipped to an all-time low of 84.11 against the dollar, marginally surpassing its previous low of 84.0950 recorded last week.

The benchmark equity indices, BSE Sensex and Nifty 50, fell roughly 1.5% each for the day, driven by probable selling from foreign investors and cautious sentiment ahead of the U.S. presidential election results.

Heavy selling by foreign investors, coupled with a lacklustre domestic earnings season, has hit Indian stocks, with benchmark indices falling around 9% from their peak in late September. In October, foreign investors sold more than $11 billion worth of Indian equities, while overseas investors and lenders reduced their holdings in government bonds for the first time since April.

Despite the decline in equities, routine intervention by the Reserve Bank of India (RBI) has limited the rupee’s losses, with expectations that the central bank will continue to stabilise the currency, as per traders.

Asian currencies generally gained on the day, while the dollar index dropped 0.2% to 103.7, likely influenced by long position reductions ahead of U.S. presidential election results. While the election outcome could notably impact equities, the RBI is expected to manage rupee volatility, a trader observed.

On 3rd June, the rupee rose to a two-month high appreciating by 28 paise to a provisional close of 83.14 against the U.S. dollar. This gain mirrored a more than 3% jump in domestic equity benchmarks, spurred by exit poll results that signalled the BJP-led government’s return.

The rupee reportedly opened at 83.09 at the interbank foreign exchange market and moved between a high of 82.95 and a low of 83.17 against the dollar during the day’s trading. It ultimately closed at 83.14 (provisional) against the dollar, marking a gain of 28 paise from its previous close. On May 31, the rupee had fallen to settle at 83.42 against the U.S. dollar. Previously, the rupee had closed at 83.13 on March 21 and crossed the 83.00 level on March 18 this year. This marked the highest single-day rise since November 15, 2023, when it gained 24 paise.

On May 31, foreign investors emerged as net buyers in Indian equities, with net purchases totaling ₹1,613.24 crore. FIIs bought shares amounting to ₹95,467.56 crore and offloaded equities worth ₹93,854.32 crore, marking one of the highest levels of foreign investor activity in the cash segment. Government data released indicated that India's economy expanded by 8.2% in the fiscal year ending in March, reinforcing its status as the world's fastest-growing major economy.