The Indian rupee strengthened to a three-week high against the US dollar on Friday, closing at Rs 83.33. According to Bloomberg data, this marked a 17-paise improvement from its previous close of Rs 83.50.
The local currency’s ascent is attributed to banks’ persistent selling of the greenback, likely on behalf of foreign funds.
The reason for this move was Shriram Finance Ltd’s significant stake sale. The financial entity offloaded its stakes in Shriram Housing Finance Ltd. to Warburg Pincus for a substantial Rs 4,630 crore, executed through Mango Crest Invest Ltd. This transaction resulted in robust dollar inflows, bolstering the rupee.
“Today, there were dollar inflows because of Shriram Finance’s stake sale to Warburg Pincus. In addition, there were inflows in the debt market. Further, daily FII outflows, usually $300–400 million, were just $5–6 million today. Because these outflows were smaller and the RBI was absent, the rupee appreciated,”
Vivek Shah, an LCR Raheja Forex Pvt dealer
Shah’s insights underline the multifaceted nature of the currency market on that particular day. The usual daily foreign institutional investor (FII) outflows, typically between $300 million and $400 million, were notably subdued, amounting to just $5–6 million.
This dramatic drop in outflows significantly contributed to the rupee’s appreciation. Also, the RBI’s absence from the market, which often intervenes to manage the currency, allowed the rupee to gain ground without resistance.
Shah further projected that in the next 15 days, the rupee might oscillate between Rs 83.20 and 83.60. Should the rupee breach the Rs 83.20 mark, it could appreciate even further, he suggested.
Anil Kumar Bhansali, head treasury and executive director at Finrex Treasury Advisors LLP, commented on the day’s events. “USD-INR fell to Rs 83.34 as inflows for an NBFC and front-running for month-end MSCI flows brought the dollar down after constant selling by RBI at Rs 83.50.
FPI and oil companies stopped buying dollars. Monday is also a holiday for forex, which would have allowed the rupee to gain for next week’s inflows,” he said.
Bhansali’s remarks highlight the broader market dynamics at play. Inflows from NBFCs and expectations around month-end MSCI flows played a pivotal role.
The sustained selling by the RBI at Rs 83.50, coupled with a halt in dollar buying by foreign portfolio investors and oil companies, created a conducive environment for the rupee’s rise. The upcoming forex holiday on Monday further amplified the rupee’s gains as traders positioned themselves for next week’s anticipated inflows.
Despite opening flat at Rs 83.49 against the dollar on Friday, the rupee managed to climb amid a slight rise in crude oil prices and a strong dollar index. This initial flat opening reflected the typical pressures of rising crude prices and a robust dollar.
The substantial dollar inflows from Shriram Finance’s stake sale and the reduced FII outflows outweighed these factors, propelling the rupee to a three-week high.
The rupee’s performance on Friday underscores the complex interplay of market forces and strategic financial moves. With the RBI stepping back and significant dollar transactions flowing in, the rupee found the breathing room it needed to strengthen.
As market watchers keenly observe, the next fortnight will be crucial in determining whether the rupee can sustain this momentum and possibly break through the Rs 83.20 barrier, setting the stage for further appreciation.
