The Indian rupee hit its all-time low, declining by 2 paise to reach at 84.13 against the US dollar in early trading on November 4. The main reasons attributed to this sharp decline are the outflow of foreign investment from Indian stocks and the ongoing US presidential elections.
Although the US dollar was weaker compared to other currencies, which usually helps other currencies rise but the outflow of investments from India had a stronger negative effect on the rupee.
Indian stock markets were under heavy pressure, with the BSE Sensex and Nifty 50 indices both dropping by more than 1%. This marked their worst performance in a month. Forex traders also mentioned the potential market fluctuations in the coming days, especially with the Federal Reserve's upcoming announcement on monetary policy later this week.
The rupee opened at 84.13 against the US dollar, dropping 2 paise from its previous close. On Monday, it had fallen to a record low of 84.11. The rupee's decline continued as US elections caused a disturbance in the stock market as per the PTI report.
Despite these challenges, the Reserve Bank of India (RBI) has taken some steps to stabilise the rupee, preventing it from falling further. The RBI's actions, including directly intervening in the market, have been important in supporting the currency, even with foreign outflows and rising US bond yields.
Factors contributing to rupees hitting low
1. Continues outflow of foreign investment
One of the reasons for the outflow is foreign investors have been selling a lot of Indian stocks, partly because they're shifting their focus to China. This has impacted the Indian market, which was already struggling with poor corporate earnings and high stock prices.
Jateen Trivedi, VP of Research at LKP Securities, says the Indian rupee is under pressure because foreign investors are pulling money out of India, attracted by better opportunities in China. As a result, the rupee is trading below 84, and if this trend continues, it could drop further to levels around 84.35 to 84.50 shortly.
2. U.S presidential election
The Indian stock market has experienced increased uncertainty due to the ongoing US election craze which has a tight competition between Republican candidate Donald Trump and Democrat candidate Kamala Harris. The rupee will remain unpredictable till the results of the US election are declared
3. Geopolitical tension
A Bank of Baroda report, quoted by ANI, says that geopolitical factors like ongoing tensions in the Middle East along with domestic inflation, and the upcoming US elections, will heavily impact the Indian rupee's movement in the near future.
Market analysts also point out that geopolitical tensions have delayed an increase in oil production by OPEC+, which has caused oil prices to rise.
Rahul Kalantri mentioned that the rupee hit its weakest level due to continued outflows from Indian stocks, which weakened the impact of a falling US dollar. The rebound in oil prices also contributed to pushing the rupee lower.