Rupee Faces Pressure from FPI Outflows, Middle East Risks

The Indian rupee is expected to open marginally lower on Thursday, weighed down by persistent foreign fund outflows and weak cues from Asian markets, though anticipated measures to support the currency could help limit losses.

In the NDF market, the Indian rupee is trading at 95.75-95.80 range, after closing 95.7050 on Wednesday.

The rupee has come under renewed pressure due to rising foreign portfolio outflows and diminishing optimism over a potential U.S.-Iran peace agreement. For India, a major importer of energy, any prolonged conflict in the Middle East poses a significant risk by driving up oil prices and worsening external balances.

However, the rupee could find support from expectations that authorities may step in with measures to strengthen the currency amid the economic impact of the U.S.-Iran conflict—a possibility that market participants have been anticipating for several weeks.

India is preparing to eliminate capital gains tax on foreign portfolio investments in government securities as part of efforts to attract more overseas capital, The Economic Times reported on Thursday.

Meanwhile, most Asian currencies came under pressure and regional stock markets declined as renewed hostilities between the U.S. and Iran dampened risk appetite. At the same time, conflicting indications of a possible de-escalation left investors cautious and reluctant to take aggressive positions.

Indian shares are expected to open lower on Thursday, tracking weakness across Asian markets, as renewed tensions between the U.S. and Iran dampened global investor sentiment. However, mixed signals suggesting possible de-escalation kept market participants cautious rather than outright bearish.

GIFT Nifty futures were trading at 23,320, signaling a weaker start for the benchmark Nifty 50, which had settled at 23,405.6 in the previous session.

Foreign portfolio investors (FPIs) were net sellers of Indian equities worth $586.91 million on Wednesday, extending their selling streak to a fourth straight session, according to provisional data. So far this year, FPIs have divested a record $27.7 billion from Indian stocks.