The rupee plunged to a new record low and the benchmark indices ended in the red after on Monday as US president Donald Trump’s aggressive tariff policies against Mexico, Canada and China and the latest threat against Europe triggered fears of a global trade war.
The rupee breached the 87/$ mark for the first time. It slumped 58 paise, ending at 87.195/$ against the previous close of 86.616/$, marking its biggest single-day loss since January 13. During the day, the rupee fell to a low of 87.2950. However, it recouped some losses as a state-owned bank sold dollars on behalf of the Reserve Bank of India (RBI) at 87.29/$, preventing the rupee from falling beyond 87.16.
The Sensex and the Nifty fell 0.41% and 0.52%, respectively, in line with global peers. However, they managed to halve their losses after both indices declined up to 1.11% intraday. The Sensex ended the day at 77,186.74, while the Nifty closed at 23,361.05.
“It was a mixed session, as prices held strong at key support levels after the early decline, leading to consolidation. Despite the anticipation surrounding the budget session, there’s a minimal impact on Nifty’s price action,” said Rajesh Bhosale, technical analyst at Angel One.
Trump has imposed 25% tariffs on Canada and Mexico and a 10% tariff on China, which pushed the dollar index up by 1.01% to 109.46. He also said Europe is next in the firing line.
Oil prices rose during the day due to fears of supply disruption, though the gains were capped by concerns over what could be an economically damaging trade war. Brent crude rose 1.41% to $76.74 per barrel in futures trading.
The broader indices underperformed the benchmarks, with the BSE Midcap and BSE Smallcap indices declining 0.89% and 1.77%, respectively. Investors’ wealth eroded by Rs 4.3 lakh crore, bringing the total market capitalsation down to Rs 419.5 lakh crore. The market breadth was negative, with 2,877 stocks declining against 1,139 advancing.
Among sectors, capital goods, industrials, power, utilities, and oil & gas were the top losers, disappointed by lower capital expenditure spending. In contrast, consumer durables were the top gainers, benefiting from the government’s tax relief measures. On Monday, index of FMCG stocks, which had gained 3% on Saturday, fell 1.6%.
Foreign portfolio investors (FPIs) offloaded equities worth Rs 3,958.37 crore, while domestic institutional investors (DIIs) net bought shares worth Rs 2,708.23 crore on Monday, according to provisional exchange data.
Among Asian currencies, the Indian rupee was the fifth-worst performer, behind the Thai baht, Taiwanese dollar, Indonesian rupiah, and South Korean won, which fell up to 1.05%.
The rupee is expected to continue facing pressure due to sustained foreign fund outflows and broad dollar strength in overseas markets, driven by unabated dollar demand from oil importers and weak risk appetite, traders said.
Further, investors and companies are increasing their long dollar positions on expectations of further appreciation. A long dollar position is a trading strategy that anticipates the US dollar strengthening against other currencies.
“The rupee is aligning with the long-term average of the real effective exchange rate, which represents its fair value,” said Kanika Pasricha, chief economic adviser at Union Bank of India.
As the week progresses, we still have some important domestic events ahead, including the monetary policy outcome and the Delhi state elections. Traders seem to be awaiting clarity from these events, but till then, we could see some choppy moves within a defined range for the key indices, Bhosale said.
Traders noted that due to the current liquidity crisis in the domestic economy, the RBI’s intervention is not as aggressive as it was in October-November. “The RBI has to allow the rupee to depreciate. It cannot step up its intervention when the fall is broad-based, meaning when most regional and major currencies are also weakening against the dollar,” said a forex trader from a state-owned bank.