The rupee on Friday closed below the 75-mark against the US dollar, weighed down by the record number of Covid-19 cases in the country and fears of FPI outflows. The domestic unit ended at 75.01 against the US currency, registering a fall of 7 paise over its previous close.
Foreign portfolio investors have been in a sell mode during this month as the surge in coronavirus cases has led to concerns over its impact on India’s fledgling economic recovery.
However, US President Joe Biden’s plan to raise the top marginal income tax and the tax on capital gains — the proceeds of selling an asset like a stock — for people earning more than $1 million has thrown up some new questions for the Indian markets. The plan would effectively increase the rate Americans pay on that income to 39.6 per cent from 20 per cent.
Wall Street’s main indexes had slid nearly 1 per cent on Thursday in response.
Some experts feel the move could make FPIs return to the Indian markets where the valuations are already low.
Others are of the view that the move could exacerbate outflows from India. However, some believe the outflows will be temporary given the fundamentals of the domestic economy and that it could recover strongly once the fresh Covid cases subside and the vaccination gathers pace.
At the inter-bank forex market, the rupee opened lower at 75.02 against the previous close of 74.94 and traded in the range of 74.75 to 75.07 during the day. It finally ended at 75.01 against the US currency. Weakness in the equity markets also weighed in on the rupee. “We expect a broader USD-INR range to be 74.50-75.50,” said Rahul Gupta, head of research-currency, Emkay Global Financial Services.
In the equity markets, after the relief rally on Thursday, shares were again under pressure as the pandemic’s impact on corporate earnings took centre stage.
The 30-share Sensex ended 202.22 points, or 0.42 per cent, lower after rising to a high of 48265.39. Barring eight shares which closed in the green, the rest ended with losses of up to 2.63 per cent. The Nifty ended 64.80 points lower at 14341.35.
Provisional data showed that in Friday’s trade, the FPIs sold stocks worth Rs 1,361 crore which will take the total outflows to nearly Rs 8,700 crore in April.
“Going ahead, Indian markets are likely to continue with its volatility. Once the pace of vaccination picks up and daily cases start subsiding, we expect the narrative to gradually shift from Covid-19 and restrictions back to fundamentals,” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.
