Indian rupee to draw support from return of foreign flows amid tech meltdown

Mumbai is set to witness a potential boost for the Indian rupee after a return of foreign capital to Indian markets following a tech meltdown. The rupee edged up 0.5% this week, reaching a two-week high of 94.32 on Thursday before stabilizing at 94.4750, and is expected to open largely flat with a slight positive bias. The Indian currency, which has struggled throughout the year and depended on central bank intervention for support, has found some relief from two key factors that had been pressuring it for months: falling oil prices and increased foreign equity investments.

Recent oil prices have dropped due to the Republican Party's losses in the US midterm elections, which may limit President Trump's ability to continue his conflict with Iran. Additionally, foreign investors have been purchasing Indian stocks, with the retreat from AI-related technology stocks providing a potential boost to markets that lost out on the AI investment trend.

This shift has brought Indian equities back into focus. The technology downturn has worsened since Thursday, with the Democratic Party's victory in the US midterm elections raising concerns about stricter regulatory oversight and possible restrictions on the expansion of AI data centers. The Nasdaq Composite fell by 5.5%, while the Philadelphia Semiconductor Index dropped over 12%.

Technology-related Asian markets also faced pressure on Friday. However, losses in Indian equities are expected to be relatively contained. Foreign investors bought a total of $1.6 billion worth of Indian equities on Thursday, marking their largest single-day purchase in nearly six years, according to provisional exchange data. This significant investment followed net purchases of about $2.2 billion over the previous four sessions.

The return of foreign capital and the impact of oil prices on the rupee's outlook will be crucial for determining the currency's future trajectory.