According to market experts, the easing of geopolitical tensions could significantly improve India’s external sector outlook by lowering the country’s oil import bill and reducing pressure on the balance of payments.
Analysts noted that the rupee has been steadily recovering since touching a low of 96.96 against the dollar in May and could continue to appreciate if crude prices remain subdued and risk sentiment improves further.
The US dollar also weakened against major global currencies. The dollar index, which measures the greenback against a basket of six currencies, slipped 0.22 per cent to 99.53, providing additional support to emerging market currencies.
Domestic equities reflected the improved mood. The Sensex jumped more than 1,100 points in opening trade, while the Nifty gained over 330 points as investors welcomed the prospect of lower energy costs and improved macroeconomic conditions.
Despite the positive market reaction, foreign institutional investors remained net sellers, offloading Indian equities worth Rs 1,082 crore in the previous session, according to exchange data.
Meanwhile, the Reserve Bank of India reported that the country’s foreign exchange reserves declined by $711 million to $681.61 billion during the week ended June 5, largely due to a reduction in foreign currency assets.
For now, however, currency markets appear focused on the potential economic benefits of lower oil prices, with traders expecting the rupee to remain on a firm footing if geopolitical stability in West Asia is sustained.
With PTI inputs
