• The Indian Rupee rallies further against the US Dollar due to multiple tailwinds.
• Lower energy prices and the continued inflow of foreign funds into the Indian stock market have strengthened the INR.
• Concerns about the AI investment outlook have improved the appeal of Indian stocks.

The Indian Rupee (INR) continues to outperform the US Dollar (USD) on the back of significant inflow of foreign funds into the Indian stock market and a continued decline in oil prices. As of writing, the USD/INR pair posts a fresh five-month low near 93.70.

FIIs buying remains significant in past trading days

There has been relentless buying in the Indian stock market by Foreign Institutional Investors (FIIs) in the past trading days.

So far in November, FIIs have remained net buyers in full trading days and have poured a cumulative investment worth Rs. 53,172.24 crore.

Currencies from economies, such as India, which are in their developing stage, tend to outperform when they become attractive investment spots for overseas investors.

What has made India an attractive bet for foreign investors?

According to a report from NDTV Profit, India's relative lack of massive, over-hyped Artificial Intelligence (AI) hardware/infrastructure concentration is now viewed as a defensive advantage, offering better earnings visibility and stability.

Global AI infrastructure-related stocks have seen a massive sell-off since the defeat of United States (US) Republicans in midterm elections.

Strategists at ABN Amro said after the outcome of US midterm elections that the “AI investment story acquired a political risk premium” after “disappointing guidance suggested the Democratic midterm victory could bring greater congressional oversight of AI data infrastructure investment,” undermining sentiment toward AI-related assets and broader risk appetite.

Additionally, fears that Jensen Huang's days as Nvidia CEO are numbered following reports of his affair with alleged Chinese spy Alice Huang have heightened concerns regarding the outlook of spending on AI infrastructure across the globe.

On Kalshi, speculators say there’s just a 17% chance Huang is gone by 2027. Those odds rise to 30% by 2028, and 35% by 2029. However, they think there is a 75% probability that Huang will depart by 2031, CNBC reported.

Oil prices continue to decline on US-Iran deal hopes

Oil prices have fallen significantly after remarks from US President Donald Trump pointing to no further military action against Iran.

Analysts at MUFG note that investor optimism has been further buoyed by a softer tone from Washington, after President Trump told CNN it is “highly unlikely” he will need to order fresh military strikes on Iran if talks continue to show progress. MUFG highlights that Trump also stressed the outcome still hinges on the quality of any deal, stating that “it depends on whether or not they sign a very strong agreement,” a nuance the bank sees as crucial for sustaining the recent pullback in geopolitical risk premia.

As of writing, the MCX Crude Oil contract expiring on November 19 is 0.6% down to near Rs. 8,050, closer to its two-month low of Rs. 7,861 posted on Tuesday.

Technical Analysis: USD/INR could decline further to near 93.00

On Wednesday, USD/INR falls to near 93.70, extending a clear bearish bias as spot holds below the 20-day exponential moving average (EMA) at 94.69. The break and sustained trade under this short-term EMA suggest sellers remain in control, while the Relative Strength Index (RSI) near 25 signals oversold conditions that could slow the downside rather than immediately reverse it.

On the topside, the 20-day EMA at 94.69 is the meaningful resistance after the June 25 low at 94.15, and a daily close back above the dynamic brrier would be needed to ease immediate downside pressure and hint at a corrective bounce.

Looking down, the pair is likely to find suppourt near 93.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Indian economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.