A persistent fall in the Indian rupee has been keeping foreign stock investors cautious. With the year drawing to a close, all eyes would now be on the third quarter earnings of the companies

Rupee all time low against dollar. Source: PTI.

The Indian rupee has been continuously losing its strength against the US dollar. On Monday, the INR slipped to its weakest closing level on record, pressured by a decline in the offshore Chinese yuan and broad-based dollar bids amid a prevailing bearish bias on the local currency.

The rupee ended at 85.5350 against the US dollar, down marginally from its close of 85.5325 in the previous session. Now, the rupee is moving closer towards the 86-mark which of course is not a good sign for a host of things, including the crucial stock market.

The rupee slipping to historic lows over the past few days is making Indian shares less lucrative to foreign investors in the near term. The weak rupee is impacting overseas investors calculating their returns in dollar terms.
This also means that preference for dollars and shares traded in dollars are getting investors’ attention. Indian shares are losing their worth on the big picture scale.

According to a report by Bloomberg, the Nifty Dollar Total Return index is barely up 8 per cent for 2024, trailing the Nifty’s roughly 10 per cent gains in rupee terms.

Over the last month, the Indian rupee fell drastically alongside its peer currencies, with the INR shedding 1.2 per cent over the last month as against a 1.3 per cent depreciation in the previous six months.

But why is rupee falling continuously

The strengthening of the dollar and worries over the impact of potential US tariffs have increased volatility in the rupee, which took a mere month-and-a-half to slip from 84 to 85 against the greenback.

As per Bloomberg report, the rupee’s one-month implied volatility versus the greenback rose to as much as 4.09 per cent on Monday, which has been the highest since August 2023.

Newly appointed Reserve Bank of India (RBI) Governor Sanjay Malhotra, who took over the charge on December 9, is yet to comment on the central bank’s foreign-exchange management. Meanwhile, traders are wondering if the new RBI chief is shifting away from the previous strategy of damping volatility in the exchange rate.

With dwindling rupee and flat stock market, the focus now shifts towards the third quarter or Q3 earning season over the coming days.

The regulatory crackdown by SEBI and BSE on smaller companies over a range of regulation issues has seemingly left an impact. For example, of the six initial public offerings (IPOs) that debuted on Friday (December 27), only one — Newmalayalam Steel, a 417 million rupee ($4.9 million) issue — ended in the red. This is in contrast to the enthusiastic reception that IPOs of small companies enjoyed just weeks ago.

Another indication comes from the decision by two companies — Trafiksol ITS Technologies and Solar91 Cleantech — to defer their IPOs abruptly. Meanwhile, trading in Bharat Global Developers suspended over fake disclosures. These factors combined show that the risk-reward ratio now appears less favourable for Indian stocks.