By Nimesh Vora
MUMBAI (Wiseova) – The Indian rupee appears likely to weaken further on Friday due to the escalating tensions between India and Pakistan, which could lead to increased hedging and speculative activities.
The 1-month non-deliverable forward suggested that the rupee would start between 85.80 to 85.90 per U.S. dollar, as opposed to 85.71 in the prior session.
The rupee on Wednesday slumped 1.04%, recording its worst session in more than two years. The currency came under pressure in the afternoon session after India reported Pakistan's attempts to engage military targets.
"A currency dealer from a Mumbai-based institution mentioned that until late yesterday, financial markets were primarily operating under the assumption that Indo-Pakistani tensions wouldn’t significantly escalate," he stated.
"This assumption is currently under review, and the stance on the rupee might have to be modified as a result," the trader noted, adding that this could prompt an increase in both hedging activities and speculative actions.
Pakistan and India accused each other of launching drone attacks on Thursday, and Islamabad’s Defense Minister said further retaliation was “increasingly certain”.
India stated that their military bases were targeted by Pakistani unmanned aerial vehicles and rockets.
Indian stocks were poised to start the day over 1% down. Analysts mentioned that during the couple of days after the escalation of tensions, foreign investors mostly believed that the circumstances would not substantially affect India’s economic outlook.
Initial reports indicated that foreign investors became net purchasers of Indian stocks on Thursday, following their investment of roughly $350 million on Wednesday.
"It will be intriguing to observe how the figures materialize during today’s session. The feeling is that the situation has changed," remarked Kunal Kurani, Assistant Vice President at Mecklai Financial.
On Friday, most Asian currencies declined, whereas the U.S. dollar gained strength compared to its key rivals, adding more challenges for the rupee.
KEY INDICATORS:
A one-month non-deliverable rupee forward stands at 86.12; the onshore one-month forward premium is at 18.75 paise.
The dollar index has risen to 100.76.
Brent crude futures increased by 0.1% to reach $62.9 per barrel.
The yield for a ten-year U.S. Treasury note stands at 4.37%.
According to NSDL figures, foreign investors purchased a net total of $349.1 million worth of Indian stocks on May 7.
According to NSDL figures, foreign investors offloaded a net amount of $115.7 million worth of Indian bonds on May 7.
(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)
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