Dollar weakness could boost FPI inflows as rupee steadies: Report

Global currency markets are witnessing heightened volatility as the US Dollar continues to lose strength against major currencies, but Indian rupee has found relative stability and weakness in dollar could lead to FII inflows, a report said recently.

The report from Emkay Wealth Management Limited said the volatility in global currency markets and decline of dollar is driven by expectations of further US Federal Reserve rate cuts and geopolitical developments.

The US Fed’s accommodative stance and expectations of additional cuts helped push the Dollar lower, the report said citing market participants. Meanwhile, the Indian rupee ‘appears to have found relative stability around Rs 90 against the US Dollar,’ with intermittent two‑way volatility observed amid market estimates that the currency may consolidate around current levels in the near term, the report said.

“India’s status as a net importer continues to weigh on the Rupee from a trade perspective; however, improving prospects for foreign investment inflows could provide some support,” the wealth management firm said.

FIIs have been net sellers in Indian equities for about 18 months, creating more attractive valuations across sectors. Analysts said that deeper rate cuts in the US, could compress dollar yields, and revive investor appetite for emerging markets such as India.

“A softer US Dollar, coupled with potential capital reallocation towards emerging markets, creates both opportunities and risks for investors. For India, sustained foreign inflows, supported by stable macro fundamentals, could help the Rupee maintain its current range despite global volatility,” said Parag Morey, Head of Sales, Emkay Wealth Management.