India rupee’s recovery may find fresh legs from equity flows, dollar weakness

By Nimesh Vora

MUMBAI, Nov 4 (Reuters) – The Indian rupee’s ongoing recovery will draw support on Wednesday from a revival in equity inflows and a ‌dip in the dollar amid US election results indicating momentum for the ‌Democratic Party.

The rupee was likely to open around 94.70, according to traders, after settling at 94.74 ​on Tuesday.

The dollar index slipped 0.3%, while US equity futures and Treasuries fell amid investor positioning for a favourable outcome for the Democratic Party in the midterm elections.

Prediction market Kalshi is now pricing in a 100% probability of the Democratic Party ‌taking control of the ⁠House and 99% odds of the party securing a Senate majority, signalling near-certainty of a shift in control of both chambers ⁠of Congress.

While US midterm results are not expected to cause structural shifts in FX, the dollar may face short-term pressure if Democrats secure both the House and the ​Senate, ​analysts at ING Bank said in a ​note.

They noted that concerns over tighter ‌regulation under a Democratic-controlled Congress could weigh on AI stocks, adding that recent market moves had demonstrated how such concerns could spill over into the dollar.

Asian currencies saw a muted reaction, while regional equities extended losses, tracking declines in US equity futures.

INDIAN SHARES FIND BUYERS

The recent weakness in the AI-led trade has ‌provided support to Indian equities, which are seen ​offering a degree of hedge. Indian equities have underperformed ​over the past several months, partly because the AI-related ​trade has drawn foreign capital to other markets.

The recent pullback in ‌AI shares appears to have encouraged ​some rotation towards India. ​The country’s equities have rallied 5% over the past four sessions.

Foreign investors poured more than $700 million into Indian equities on Tuesday, taking purchases over ​the past three sessions ‌to around $1.5 billion.

Expectations that India may cut or scrap the long-term ​capital gains tax for foreign investors have further boosted buying interest.

(Reporting ​by Nimesh Vora; Editing by Rashmi Aich)