Rupee Falls Most In 16 Months As Poll Results Throw A Surprise

The Indian rupee came under pressure against the US dollar on Tuesday, as risk sentiment soured, after trends emerging from counting of votes signaled that Prime Minister Narendra Modi's Bharatiya Janata Party-led alliance would win lesser than expected seats in Lok Sabha elections, according to traders.

The rupee closed at 83.53 against the US dollar on Tuesday, as compared with 83.14 a dollar on Monday. It registered the largest single-day decline since Feb. 6, 2023.

A steep sell-off in domestic equities turned the tide on the Indian currency as well, foreign exchange traders said.

Domestic benchmark indices, Sensex and Nifty 50, fell nearly 6% on Tuesday, marred by the trends that showed the PM Modi-led National Democratic Alliance fell short of the landslide victory predicted in exit polls.

Dollar demand from importers, after noting a 2% fall in crude oil prices, also weighed on the rupee, traders said.

However, the fall in the Indian currency was cushioned by sales of the greenback for about 83.47–83.50 a dollar, likely on behalf of the Reserve Bank of India, they said.

"Post exit polls, nobody was positioned for the surprise today. Market was expecting a comfortable victory (for the NDA). That is why, there was negative reaction everywhere including the currency," Sajal Gupta, executive director and head of forex and commodities at Nuvama Institutional Pvt., said.

Considering that the 39-paise fall on Monday was a "knee-jerk reaction", Gupta sees the fall in the rupee to be limited to 83.80 a dollar level. The movement in the currency on Wednesday will be guided by stock markets, he said.

The final results of polls would be a key determinant to ensure continuity of economic policies, currency traders said.

Nevertheless, market players are optimistic about foreign fund inflows on account of inclusion of India into the JPMorgan bond of indices as well as domestic equities, which is likely to provide cushioning to the rupee.