Rupee Rises, Bulls Return: What's Driving India's Markets?

Indian investors and forex traders have recently found a few reasons to celebrate, as the country's financial markets seem to be on the rebound.

Bulls have returned to D-Street and positive sentiment has helped the rupee pare downturns. AI-generated image via DALL-E.

The Indian rupee is gradually recovering against the US dollar, and after facing multiple challenges in recent months, the stock market is now consistently showing positive gains.

Let’s take a closer look at the current state of India’s financial landscape.

Positive Momentum in INR-USD Exchange Rate

The Indian rupee opened near a three-month high on Tuesday, March 25, supported by foreign inflows, strong domestic equities, and improved geopolitical sentiment.

The currency began trading at 85.58 against the US dollar, its highest level since December 31, 2024, when it stood at 85.61. In the previous session, the rupee had closed at 85.61, rising by 37 paise and fully erasing its year-to-date losses.

Over the past seven trading sessions, the rupee has gained 154 paise, making it the best-performing Asian currency for the month.

What’s behind the rupee’s rise?

Forex dealers attribute the rally to strong domestic equity markets and optimism regarding progress in ceasefire negotiations between Russia and Ukraine. These factors have supported liquidity and led traders to unwind their dollar long positions.

Additionally, intermittent foreign portfolio investor (FPI) inflows and the repatriation of dollar earnings by Indian corporates ahead of the March 31 fiscal year-end have reinforced this strength.

Dilip Parmar, Research Analyst at HDFC Securities, highlighted another contributing factor: improved market sentiment ahead of the US representative’s visit to India before the April 2 reciprocal tariff implementations.

Concerns remain

“Exporters are waiting for better levels to hedge. However, if 85.50 breaks decisively then maybe we are approaching 84.75”, said Anil Kumar Bhansali, the Head of Treasury at Finrex Treasury Advisors LLP.

Despite the positive market sentiment, the currency saw a slight dip in early trading on Tuesday, declining by 23 paise to 85.84 against the US dollar.

Although the rupee has gained over 2% in March, some market participants remain wary. Analysts suggest that the seasonal tailwinds may have largely run their course, potentially capping further appreciation unless fresh drivers emerge.

Meanwhile, others caution that the market might be overlooking risks to the rupee, especially those stemming from US trade policy.

Bulls back on D-Street

The Indian stock market has gained momentum, with bulls reclaiming control of Dalal Street after a prolonged pause.

Tuesday marked the seventh consecutive session where benchmark indices, Sensex and Nifty 50, opened in the green—marking the longest winning streak since September last year.

This rally has been largely fueled by foreign institutional investors (FIIs) turning net buyers, injecting substantial capital into Indian equities.

Strong economic fundamentals, including healthy tax revenues, easing inflation, and fair stock valuations, have bolstered investor confidence.

In recent sessions, banking and energy stocks have outperformed, driving the market rally. Additionally, falling US treasury yields and a dovish stance by the US Federal Reserve have enhanced the attractiveness of emerging markets like India.

However, on Tuesday, the momentum wavered, with markets closing flat. The 30-share Sensex gained 32.8 points (0.042%) to settle at 78,017.19, while the broader Nifty 50 index slipped 52.2 points (0.22%) to close at 23,606.15.

Despite the slight setback, the resilience of Indian markets amid global uncertainties remains noteworthy.

(This Article was originally published by First Post)