The rupee closed at 91.80 per dollar amid possible RBI intervention, prompting traders to buy the dip. It had earlier closed at a record low of 92.33. Oil prices have fallen nearly 10% from their panic-stricken peak a day earlier, but are paring losses as of press time.
Risk assets reflected a smart recovery of the currency. The NSE Nifty rose 1% to 24,261.60. The BSE Sensex rose 0.8% to 78,205.98.
Institutions Sectoral indicators up
Both gauges have fallen about 3% in the past two sessions.
“Oil prices fell yesterday (Monday), after touching $119, and further declines on Tuesday led traders to reduce their bearish bets,” said Siddharth Bhamri, head of research at Asit C. Mehta Intermediates. “The West Asian conflict has caused ‘fear shorts’ to form in the system, with Donald Trump signaling that the war is over.”
Across Asia, South Korea grew 5.4% while Japan grew 2.9%. Hong Kong and Taiwan each rose more than 2%. China grew 0.7%.
Analysts said that while the rebound may be extended, investors remain cautious given the volatility in crude oil prices due to conflicts in West Asia.
Some uncommitted investors with high cash reserves are also likely to have invested because the downturn offered a good entry point, Bamry said.
All sectoral indices rose except IT and oil and gas indices. The Nifty Auto Index rose 3.1% and the Nifty Consumer Durables Index rose 2.7%. Bank Nifty rose 1.6% and the PSU Bank index rose 2.2%. “Some weak hands dumped their short positions after Trump said the war would be over soon. This led to a build-up of longs in well-performing sectors such as auto and pharma.”
The rupee, meanwhile, was trading at 92.19 per dollar and 91.72 per dollar. Brent crude fell to around $93 a barrel on Monday after the US president said the “war is pretty much over”.
The dollar index also fell to 98.5 from the previous day’s near 100 level, strengthening Asian currencies.
‘Cautious Optimism’
Still, volatility in oil prices remains a key driver for the rupee’s move, and if oil prices rise above $100 a barrel, traders said the pace of oil depreciation will increase.
“With cooling crude prices and a slight weakening of the dollar, rupee sentiment has improved. I expected the trading range to remain between 91.25/$1 and 92.60/$1,” said Jatin Trivedi, currency research analyst at LKP Securities. “Crude price movements and direction in the dollar index will continue to guide near-term currency trends.”
Energy prices also remain a major concern for risk assets, with analysts interpreting the lower-than-expected drop in the fear gauge to suggest a rise in oil prices could dampen stocks.
The Volatility Index (VIX) fell from 19.1% to 18.9 – indicating that traders are reducing risk funding.
Foreign portfolio investors sold shares worth ₹ 4,672.7 million on Tuesday. Their domestic counterparts bought shares worth $6,333.3 million. In March, global investors bought stocks worth ₹ 33,429.6 billion.
Bamry said while the recovery could be extended in the short term, earlier corrections were significant. “Investors are not advised to go with the pullback because it is not certain whether the bottom will form,” he said. “There is no major rally early on. Unless tensions re-emerge, markets are expected to see modest declines rather than deep declines. Volatility and global risk-averse sentiment could keep gains under wraps.”
