India rupee's recovery may find fresh legs from equity flows, dollar weakness
- The Indian rupee was likely to open around 94.70, according to traders, after settling at 94.74 on Tuesday
The Indian rupee is recovering, supported by renewed equity inflows and a weaker dollar, as US midterm election results indicate a potential Democratic sweep, impacting global markets and AI stocks.
- Impact of US midterm election results on the dollar and global equities.
- How a potential Democratic-controlled Congress could affect AI stocks.
- Reasons behind the recent surge in foreign investment into Indian equities.
MUMBAI: The Indian rupee’s ongoing recovery will draw support on Wednesday from a revival in equity inflows and a dip in the dollar amid US election results indicating momentum for the Democratic Party.
The Indian rupee was likely to open around 94.70, according to traders, after settling at 94.74 on Tuesday.
The dollar index slipped 0.3%, while US equity futures and Treasuries fell amid investor positioning for a favourable outcome for the Democratic Party in the midterm elections.
Prediction market Kalshi is now pricing in a 100% probability of the Democratic Party taking control of the House and 99% odds of the party securing a Senate majority, signalling near-certainty of a shift in control of both chambers of Congress.
While US midterm results are not expected to cause structural shifts in FX, the dollar may face short-term pressure if Democrats secure both the House and the Senate, analysts at ING Bank said in a note.
They noted that concerns over tighter regulation under a Democratic-controlled Congress could weigh on AI stocks, adding that recent market moves had demonstrated how such concerns could spill over into the dollar.
Asian currencies saw a muted reaction, while regional equities extended losses, tracking declines in US equity futures.
Indian shares find buyers
The recent weakness in the AI-led trade has provided support to Indian equities, which are seen offering a degree of hedge. Indian equities have underperformed over the past several months, partly because the AI-related trade has drawn foreign capital to other markets.
The recent pullback in AI shares appears to have encouraged some rotation towards India. The country’s equities have rallied 5% over the past four sessions.
Foreign investors poured more than $700 million into Indian equities on Tuesday, taking purchases over the past three sessions to around $1.5 billion.
Expectations that India may cut or scrap the long-term capital gains tax for foreign investors have further boosted buying interest.
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