On Monday, FPIs returned with inflows, sparking optimism in the market. Traders say FPIs are selling dollars and buying rupees, prompting some long-dollar positions to unwind.
The Reserve Bank of India (RBI) has not intervened in the market, making the rupee’s recovery entirely market-driven. Traders say positive chatter around resolving tariff issues by late August, along with easier trade with China, is further boosting sentiment. There is growing speculation that the worst may be over for the rupee.
Meanwhile, the bond market is facing severe stress. Even before the recent S&P rating upgrade, there was little demand for bonds, leaving the market “broken.” The temporary rally following the upgrade was short-lived, with a sharp sell-off observed recently, partly triggered by GST cut announcements.
Banks are grappling with losses in their hold-to-maturity portfolios, while insurance companies are seeing muted demand for forward purchases. FPIs, who were earlier buyers of bonds, have turned sellers, reflecting a broader aversion to fixed-income assets.
The negative sentiment is not limited to India. Global bond markets, including the US, are also witnessing weak demand, leaving the domestic market highly vulnerable. With no immediate intervention from the RBI, the market remains in limbo, waiting for positive triggers to restore confidence.
(Edited by : Ajay Vaishnav)
