India rupee’s recovery may find fresh legs from equity flows, dollar weakness
The Indian rupee's recovery may gain renewed momentum on Wednesday, bolstered by a surge in equity inflows and a weakening dollar following US election results that hint at a favorable outcome for the Democratic Party. Analysts predict the rupee could open at around 94.70, up from its Tuesday level of 94.74. The dollar index slipped 0.3% on Wednesday, while US equity futures and Treasuries declined as investors positioned themselves for a positive Democratic Party performance in the midterm elections.
Prediction market Kalshi now assigns a 100% probability to the Democrats controlling the House and a 99% chance of them securing a Senate majority, indicating near-certainty of a shift in Congress control. While the US midterm results are not anticipated to bring significant structural changes to foreign exchange markets, a Democratic-led Congress may exert short-term downward pressure on the dollar due to concerns over tighter regulations, particularly in the AI sector.
Recent market movements have demonstrated how such worries could ripple into the dollar. Asian currencies experienced a subdued reaction, while regional equities continued their decline, mirroring US equity futures' downtrend. The recent slump in AI-related stocks has provided a lifeline to Indian equities, which are viewed as a hedge against potential volatility.
Indian equities have lagged behind their peers over the past few months, partly due to foreign capital flowing into alternative markets driven by AI investments. The latest pullback in AI shares seems to have triggered a shift towards India, with the country's equities surging 5% over the past four days. Foreign investors deposited over $700 million into Indian equities on Tuesday, bringing the total inflows over the past three sessions to approximately $1.5 billion.
The prospect of India potentially lowering or eliminating the long-term capital gains tax for foreign investors has further incentivized buying activity.
Written by urgent.news from Investing.com's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
