Indian markets struggle to keep pace with global peers amid oil, rupee and geopolitical pressures

Mumbai witnessed the Indian rupee hitting its lowest point in over a week on Monday, as soaring oil prices adversely affected regional stocks and currencies, causing investors to worry about the implications of high energy costs and geopolitical instability. State-run banks are believed to have sold dollars on behalf of the Reserve Bank of India (RBI), helping to mitigate the losses, with the rupee settling at 95.9825 against the dollar, a 0.2% decrease.

Brent crude oil prices surged by nearly 4%, reaching $108.2 per barrel. US President Donald Trump criticized Iran's peace plan, although he stated in a phone conversation with Axios that he anticipated US negotiators would continue discussions this week. The reaction from investors led to higher bond yields and declining stocks.

MSCI's Asian stock index declined by nearly 1%, and Indian stocks fell by approximately 1.5%, marking their lowest levels since April. India relies heavily on crude imports, constituting nearly 90% of its requirements, making the rupee particularly susceptible to Middle East oil shocks. Analysts at Goldman Sachs noted that many investors have a bearish outlook on emerging market Asian currencies, including the Philippine peso, Indonesian rupiah, and Indian rupee, due to their vulnerability to increased energy expenses.

Goldman Sachs also stated that the RBI has the capacity to maintain the rupee within the 94-97 range or at least control the rate of depreciation. However, investors are closely monitoring the RBI's efforts to defend the currency. Between June 8 and September 18, the RBI attracted $143.6 billion in capital inflows through various policy measures.

According to a trader at a foreign bank, the rupee is currently at its floor at 96 INR, and the RBI does not appear likely to permit a move beyond this level for now.