Revival in foreign flows to back Indian rupee, dollar strength offers resistance

MUMBAI: The Indian rupee is set to open largely flat on Thursday, with the ongoing revival in foreign equity inflows providing ​a counterweight to a resurgent dollar that has advanced ‌to a one-month high.

The Indian rupee is expected to open in the 93.68 to 93.74 range, having settled at 93.69 to the dollar on Wednesday, its highest level ​since April.

Foreign investors poured $1.34 billion into Indian equities on Wednesday, ​per provisional data, taking month-to-date inflows to just shy ⁠of the $8 billion mark.

The scale of the reversal in foreign flows ​has been striking. Fears of tighter US restrictions on AI data-centre construction ​following the Democratic Party election win have unsettled the AI trade, prompting investors to pare exposure to semiconductor-heavy markets and redirect capital towards India, which is being ​seen as a diversification play.

Before the November resurgence, foreign investors ​had pulled more than $30 billion from Indian equities so far this year.

This has provided ‌the ⁠rupee a much-needed lift, reinforcing the Reserve Bank of India’s efforts to stabilise the currency.

A retreat in oil prices has been an additional tailwind. Brent crude is hovering around $92 a barrel, down from a high of $118 ​less than two ​weeks ago.

The ⁠rupee’s narrative has shifted “decisively”, with the focus now turning to how durable the turnaround in sentiment and ​foreign inflows will prove to be, a currency trader ​at ⁠a bank said.

Dollar in favour

The dollar index held near a one-month high against major peers in Asian trading on Thursday, supported by mounting expectations ⁠of ​a Federal Reserve rate hike.

Traders ramped up ​bets of further Fed tightening following higher-than-expected October inflation data and a series of hawkish remarks ​from US central bank officials.