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Informist, Tuesday, Jul 23, 2024

By Sourabh Kumar

MUMBAI – The rupee ended at a record closing low against the dollar as foreign portfolio investors pulled out from the domestic stock market and bought dollars after Finance Minister Nirmala Sitharaman proposed raising the long-term capital gains tax on all financial and non-financial assets in the Budget, dealers said. However, the Reserve Bank of India's active dollar sales limited the fall of the Indian currency, they said.

"After capital gains tax was raised in the Budget, we saw huge outflows from equities, and then the rupee also came under extreme pressure," a dealer with a state-owned bank said.

The Indian currency touched a lifetime low of 83.7125 a dollar during the day, and went on to settle at a record closing low of 83.6875 a dollar against 83.6350 a dollar on Monday.

The rupee opened steady ahead of the announcement of the Union Budget for the current financial year at 1100 IST.

In the Budget, market participants were watching out for any change in the fiscal deficit target for the current financial year. Even though the fiscal deficit target was lowered to 4.9% from the estimate of 5.1% in the Interim Budget, there was no impact on the dollar/rupee. The fiscal deficit target of 4.9% is below the consensus estimate of 5.0% in an Informist poll.

"Fiscal numbers are something which will affect the currency in the medium term, but the changes proposed in capital gains tax had a direct and immediate effect on the view of investors, and that is why they exited the equities market and so the effect seen on the rupee," a dealer with a foreign bank said.

The finance minister announced an upward revision in long-term capital gains tax to 12.5% from 10%, and an increase in short-term capital gains tax to 20% from 15% earlier. She also announced a hike in the securities transaction tax on futures and options to 0.02% and 0.1%, respectively. Following this, domestic equities fell sharply, which in turn, dragged the Indian currency down to a record low of 83.7125 a dollar. 

Sitharaman also announced reduction in customs duty on gold and silver to 6%. This also weighed on sentiment for the rupee, dealers said.

Lowering custom duties potentially increases the demand and import levels of these key commodities, affecting the trade balance and exerting additional pressure on the rupee.

As risk sentiment was hit following the announcement of a hike in short-term and long-term capital gains tax, foreign portfolio investors continuously bought the greenback, which weighed on the rupee, dealers said. The central bank initially intervened by way of dollar sales around 83.67 a dollar, and later at 83.70 a dollar, which limited the fall of the Indian unit, they said. Dealers said the central bank aggressively sold the greenback around 83.70 a dollar. 

"Dollar buying continued to be the theme after the increase in LTCG and STCG and then the removal of indexation benefit. Rupee looks vulnerable to 84.00 soon as RBI absorbs the dollar supply," said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

A few exporters sold the greenback noting a relatively higher dollar/rupee level, dealers said. They said some exporters sold dollars at 83.68-83.69 a dollar levels, while most of them let go of their greenback holdings when the Indian unit fell below 83.70 a dollar.

Meanwhile, the dollar index remained steady ahead of the US June personal consumption expenditure data, which is due on Friday. The key inflation figure is expected to rise 0.1% on a monthly basis, a poll by Reuters shows. The dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 104.45 at 1627 IST, compared with Monday's close of 104.28 and Friday's close of 104.37.

"The rupee is a completely controlled currency at this point, there is no way we will see a big move. It all depends on the RBI, and looking at their management it is unlikely that they will let it fall below 83.75-83.80," a dealer with a big state-owned bank said.

A fall in crude oil prices also supported the rupee, dealers said. Oil prices were down on concerns over rising inventories around the globe and weakening demand prospects. The American Petroleum Institute, a trade group, is due to release its estimates for last week's oil inventories today, while official US government data is scheduled on Wednesday. A preliminary Reuters poll of six analysts estimated that US crude stocks, on average, fell by 2.5 mln barrels in the week ended Jul 19, while gasoline stocks likely dropped by 500,000 bbl.

PREMIUMS

Premiums on the one-year dollar/rupee forward contract ended slightly down as banks sold the greenback for forward delivery in order to take advantage of the relatively higher premium levels, dealers said. Premiums had touched a high of 1.77% on Monday, a level last seen in February.

Some exporters also stepped in to sell the greenback for forward delivery, noting the rupee's fall to a record low in the domestic spot market, dealers said. The rupee fell to a lifetime low of 83.7125 a dollar. Dealers see strong support for the one-year dollar/rupee forward premium at 1.77%. "While some people are receiving at current levels, I expect premiums to rise to 1.80%," a dealer with a private bank said. 

If the US Federal Reserve does cut interest rates in September and the Reserve Bank of India keeps its policy rate unchanged, the interest rate differential between the countries will rise, expectations of which are keeping premiums higher.

At 1530 IST, the premium on the one-year, exact-period dollar/rupee forward contract was 146.70 paise, compared to 147.19 paise on Monday. On an annualised basis, the premium was 1.75%, against Monday's close of 1.76%.

OUTLOOK

On Wednesday, market participants will take cues from movement of the dollar index and crude oil prices, dealers said. Market participants expect the RBI to continue intervening in the market through dollar sales to prevent runaway depreciation of the Indian unit.

"I expect the rupee to be under pressure, and if it breaches 72 (83.72 a dollar), I think it may fall to 84 (83.84) a dollar," a dealer with a state-owned bank said.

During the day, the rupee is seen at 83.50-83.70 a dollar, with key technical support pegged at 83.70 a dollar.

India Rupee: Premiums tad dn as bks sell fwd dlrs noting high levels

MUMBAI – Premiums on the one-year dollar/rupee forward contract were slightly down as banks sold the greenback for forward delivery in order to take advantage of the higher premium levels, dealers said. Premiums had touched a high of 1.77% on Monday, a level last seen in February.

"It is a level at which two-way action can be seen," a dealer with a private bank said. "Since we all expected forwards to come to 1.75%, and now that is here finally, a few people will definitely receive."

Some exporters also stepped in to sell the greenback for forward delivery, noting the rupee's record low fall in the domestic spot market, dealers said. The rupee fell to a lifetime low of 83.7125 a dollar today. Dealers see strong support for the one-year dollar/rupee forward premium at 1.77%. 

In the near term, market players expect premiums to remain high as they factored in the possibility of a rate cut by the US Federal Reserve at its September meeting, dealers said. With the Fed expected to cut rates, and India delaying a rate cut, as expected by the market, the interest rate differential between the US and India is likely to rise, thus, driving dollar/rupee forward premiums higher. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. 

At 1444 IST, the premium on the one-year, exact-period dollar/rupee forward contract was 147.00 paise, compared to 147.19 paise on Monday. On an annualised basis, the premium was 1.75%, down from Monday's close of 1.76%.  (Sourabh Kumar)

India Rupee: At record low as equities painted red post Budget speech

India Rupee: At record low as equities painted red post Budget speech

MUMBAI – The rupee hit a record low against the dollar after domestic equities fell post the announcement of a hike in the capital gains tax in the Budget for this financial year, dealers said. The Indian currency hit a record low of 83.6925 a dollar.

"After some tax changes in the Budget speech, equities went down, and then the rupee also fell because of that," a dealer with a state-owned bank said.

The equity market slumped after Finance Minister Nirmala Sitharaman hiked long-term capital gains tax on all financial and non-financial assets to 12.5% from 10% earlier, with short-term capital gains tax of 20% on some assets.

The Reserve Bank of India sold dollars to prevent a runaway depreciation in the Indian currency, dealers said. A few dealers said that despite the RBI's intervention, the rupee may fall past 83.70 a dollar. Others said 83.70 a dollar could be a hard stop. They said that if the Indian unit falls below 83.70 a dollar, it may go down till 83.74 a dollar today.

Apart from the RBI, a few exporters' dollar sales, noting higher dollar/rupee levels, also supported, dealers said. Most of the exporters, however, wait for the rupee to fall below 83.70 a dollar before placing large bets, they said.

For the rest of the day, the rupee is seen in a range of 83.55-83.75 against the dollar, dealers said. They peg immediate key technical support for the Indian currency at 83.70 a dollar.  (Sourabh Kumar)

India Rupee: Technical Levels for rupee - Jul 23

NEW DELHI – At 0900 IST, the rupee was at 83.6350 a dollar, against 83.6575 from the previous close. At 1036 IST, the rupee was at 83.6350 per dollar.

Following are key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Kabir Sharma)

India Rupee: Steady as traders cautious ahead of FY25 Union Budget

NEW DELHI – The rupee was steady against the dollar as market participants were cautious about placing large bets ahead of the Union Budget for 2024-25 (Apr-Mar), dealers said.

"Market will remain range-bound before the Budget...will look for any changes to fiscal consolidation," a dealer at a brokerage firm said. "If they go for good capex (capital expenditure) without harming fiscal consolidation, it will be good for rupee," he said. 

The government is likely to lower its fiscal deficit target for 2024-25 (Apr-Mar) to 5.0% of GDP from 5.1% projected in the Interim Budget, according to an Informist poll of 21 economists and bond market participants.

A fall in crude oil prices supported the rupee, dealers said. Oil prices fell due to concerns around rising inventories around the globe and weakening demand prospects. Total oil and refined products stockpiles are trending higher in all major trading hubs except Europe, a StoneX report showed. 

Dealers expect the Reserve Bank of India to intervene in the foreign exchange market by way of dollar sales to prevent runaway depreciation in the Indian unit. 

For the rest of the day, the rupee is seen in a range of 83.50-83.70 against the dollar, dealers said. They peg immediate key technical support for the Indian currency at 83.70 a dollar.  (Kabir Sharma)

India Rupee - Asia FX: Mixed; firm dlr offsets gains in local shrs

NEW DELHI – Asian currencies against the dollar were mixed today as the positive impact from gains in local equities were offset by a firm dollar. 

Asian equities rose today, tracking gains on Wall Street as market participants digested US President Biden's withdrawal from the election in November. The dollar remained firm after falling on Monday amid rising expectations of Donald Trump returning as US President. 

The Taiwan dollar recovered after falling to an over eight-year low on Monday as technology stocks in the region recovered. The South Korean won led gains against the dollar as the finance minister said South Korea's consumer inflation might temporarily pick up in July.

The Thai Baht also rose against the dollar following news that it hit a record high against the Myanmar Kyat. At the Myanmar-Thai border in Myawady, both Thai Baht and Myanmar Kyat are used in transactions, but Thai products are bought with Baht.

The offshore Chinese yuan was down 0.1% against the dollar as market participants assessed the People's Bank of China's decision to cut its key policy rate by 10 basis points on Monday. (Kabir Sharma)

India Rupee: Expected range for rupee - Jul 23

NEW DELHI – Following are the expected support and resistance levels for the rupee today, as forecast by leading banks and brokerages in an Informist poll:

(Kabir Sharma)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

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