New Delhi: Easing Middle East tensions and recent policy measures by the Reserve Bank of India and the government have eased near‑term stress on the Indian rupee, a report said on Monday.
The report from Elara Securities said the domestic currency could appreciate against the American dollar in H1 FY27, as current account pressures reduce and flows improve, keeping the rupee oscillating within a 93‑95 range.
If the US Federal Reserve raises rates, as expected with a 50 basis‑point hike in H2FY27, it could reinvigorate stress on emerging market foreign exchanges including INR and this could keep appreciation strength capped.
The report noted that policy intervention helped cap near-term and credited FX market stabilisation measures, tax relaxations for government bonds and incentives to attract debt FX inflows.
The landmark Income-Tax Ordinance of June 5, 2026, which made India’s G-Sec investment tax-free for FPIs, has led to resumption of reasonable flows into the Indian debt market apart from moderation in the yields, the report noted.
The FPI inflows into India debt via the FAR route have surged to $1.7 billion in 10 trading days since the RBI policy, compared to 229 million in 10 trading days before the RBI policy. Including the possible inclusion of India into Global Bloomberg Bond Index, the combined flows into India may amount to $80-85 billion.
Even as current account funding risks for FY27 dissipate, the report cited concerns about prospects of durable foreign capital flows in FY28 amid a globally shrinking FDI pie and tightening monetary policy in the US and likely soft FPI equity flows into India amid concentration of tech flows into the US.
As the US braces for a rate hike cycle amid continued concentration of AI-related flows into the US, the outlook for FPI inflows into Indian equities remains sombre, it added.
The firm has forecasted prospects of three rate hikes of 25 bps each from the US Federal Reserve in September 2026, December 2026, and January 2027.
(IANS)
