Should investors worry about foreign outflows and oil surge?

Mumbai: The Indian rupee slipped 7 paise to 88.77 against the US dollar in early trading on Monday, weighed down by rising crude oil prices and continued foreign capital outflows amid global trade concerns.

According to forex traders, weak domestic equity markets added further pressure on the currency, although a softer American dollar provided some cushion at lower levels.

At the interbank foreign exchange, the rupee opened at 88.73 and later slipped to 88.77 against the greenback, compared to its previous close of 88.70. The domestic currency had ended 1 paisa lower on Friday, following a sharp 47 paise drop on Thursday after hawkish comments by US Federal Reserve chair Jerome Powell.

The dollar index, which measures the greenback’s strength against six major currencies, declined slightly by 0.04 per cent to 99.59. Meanwhile, Brent crude, the global oil benchmark, edged up 0.31 per cent to USD 64.97 per barrel in futures trading.

On the equities front, the BSE Sensex fell 258.83 points or 0.31 per cent to 83,679.88 in early trade, while the NSE Nifty dipped 47.95 points or 0.19 per cent to 25,674.15.

Foreign institutional investors continued to pull out capital, selling equities worth ₹6,769.34 crore on Friday, as per exchange data.

Data released by the Reserve Bank of India (RBI) on Friday showed the country’s foreign exchange reserves declined by USD 6.925 billion to USD 695.355 billion during the week ended October 24. This followed a rise of USD 4.496 billion in the previous week, taking total reserves to USD 702.28 billion.

On the macroeconomic front, the Union government’s fiscal deficit stood at 36.5 per cent of the full-year target by the end of the first half of FY26, compared with 29 per cent during the same period of FY25, according to the Controller General of Accounts (CGA).

The rupee’s decline comes amid renewed global economic uncertainty, driven by volatile crude oil prices and investor risk aversion. Analysts suggest that foreign portfolio outflows and reduced equity sentiment are weighing on the currency despite moderate support from the dollar’s weakness.

Market observers note that with India’s rising import bill due to oil and declining forex reserves, the rupee is likely to remain under pressure in the near term. The RBI is expected to intervene intermittently to prevent sharp depreciation, although traders anticipate a cautious approach ahead of the upcoming monetary policy review.

Meanwhile, global markets remain focused on the US Federal Reserve’s stance, as Powell’s recent remarks hinted at prolonged higher interest rates to control inflation — a move that could impact emerging market currencies, including the rupee.
(With PTI inputs)

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