Lower Oil and Strong Equity Demand Boost Indian Rupee

Key Moments

Rupee Strengthens as Oil Retreats and Capital Returns

According to Lloyd Chan of MUFG, the Indian Rupee has recently benefited from a combination of softer Oil prices and renewed foreign equity inflows. These dynamics have coincided with USD/INR falling to its lowest level since April.

Chan highlighted that the improved backdrop in commodity markets has eased several key macro pressures for India, while foreign investors have been reallocating capital toward Indian stocks in contrast to other major Asian markets.

Impact of Lower Crude Prices on India

Lower Oil prices have been a critical driver of the Rupee’s recent performance. MUFG points out that cheaper crude has led to more favorable terms of trade for India. This has also lessened the burden of the import bill and provided some relief to corporate profit margins, both of which are typically vulnerable when energy prices rise.

Foreign Equity Flows Favor India Over Peers

Foreign participation in India’s equity market has also strengthened the Rupee. MUFG notes that investors bought a net $5.2bn of Indian equities over the past week, with inflows picking up pace toward the end of the period.

This performance stood out relative to other regional markets. While India attracted sizeable foreign capital, South Korea and Taiwan experienced net equity outflows over the same timeframe.

Analyst Commentary

MUFG summarized the current backdrop for the Rupee as follows:

“INR has emerged as a key beneficiary of the recent combination of lower oil prices and returning foreign equity inflows, with USD/INR falling below 94.00 to its lowest since April.”

“Lower crude improves India’s terms of trade and eases pressure on the import bill and corporate margins.”

“Meanwhile, foreign investors bought a net $5.2bn of Indian equities last week, with inflows accelerating towards the end of the week. This contrast with net foreign equity selling in South Korea and Taiwan.”