The Indian Rupee (INR) continued its strong performance against several major currencies on Thursday, most notably against the Japanese Yen. Despite a cooling growth in India’s private sector indicated by the flash Composite Purchasing Managers’ Index (PMI), the rupee remained firm against the US Dollar (USD), changing by -0.04% and trading at around 87.85. With rising expectations for a United States-India bilateral trade agreement, renewed optimism may just be warranted. This agreement would pave the way for reduced tariffs on Indian exports to the U.S.
The currency’s rally was widespread across other major currencies as well. The rupee appreciated against the Swiss Franc (CHF), appreciating by 0.04%. In a robust result, it exhibited a negative change of 0.08%. The rupee depreciated by 0.12% against the EURO and GBP 0.23%. At the same time, it lost 0.12% against Euro (EUR). These sharp ups and downs are further evidence of the current volatility in the currency markets and the effects of all-around economic turbulence.
Economic Indicators and PMI Readings
The Composite PMI for India came in at 59.9, a decrease from 61.0 in September. A value of more than 50 usually means the economy is growing—which is typically a bullish sign for the Indian Rupee. On the other hand, a below 50 print could be viewed as a contraction, inducing bearish pressure for the currency.
Chief India Economists at HSBC Pranjul Bhandari noted that the HSBC flash manufacturing PMI has made a modest comeback. This increase is almost certainly fuelled by GST rate cuts, which have increased the stimulus from domestic demand and lowered cost pressures. Both new orders and output, by comparison, are above the average Jan-Jul levels. The legacy effect of US tariffs continues to hang heavily over new export orders. As a result, future optimism is still below where it was from January through July.
These observations reinforce the contradictory economic indicators currently working to depress investor confidence and currency values. Despite domestic demand being resilient, some external pressures including the tariffs are creating obstacles to strong export growth and uplifting overall economic optimism.
Foreign Institutional Investors and Market Sentiment
Foreign Institutional Investors (FIIs) have been consistent, active participants in the Indian equity market – a trend that has taken a turn towards caution in recent days. On Thursday, FIIs net sold shares worth Rs. 1,165.94 crores. In the last few days, their cumulative sales crossed Rs. 2,262.08 crores. As a result, such outflows have sparked fears of a second tsunami of foreign fund exits from the Indian markets.
Short-sellers be warned Despite this pressure, foreign institutional investor (FII) stakes in the Indian equity market skyrocketed from October 15 to 21. The specific funding levels are still not public. Sentiment among investors is currently a confusing hodgepodge. As they do, they’re shaping the global economy and transforming international relations in entirely new ways.
Trade Deal Optimism and Market Trends
Possible India‐US trade negotiations further add to this complicated backdrop. This complicates the overall currency environment even further. At present, the United States has a 50% tariff on a number of Indian imports. But according to the latest reports, negotiators are reporting an optimistic mood. They are optimistic that they can bring them down to a negotiated figure in the range of 15-16%. If successful, such a bilateral trade agreement would go a long way in improving India’s export competitiveness and in supporting the strength of the Indian rupee.
Many market analysts are cautiously optimistic about the near-term trend for the USD/INR pair. As things stand at the moment, REE is trading under its 50-day Exponential Moving Average (EMA) of about 88.11 – a bearish sign. These ambiguous market conditions are a timely reminder to investors to be cautious and thoughtful as the market shifts.