The Indian rupee tumbled 45 paise to close at 83.59 (provisional) against the US dollar on June 4, driven by election uncertainty and a significant sell-off in domestic equities. The drop came as the ruling BJP-led coalition appeared unlikely to secure an absolute majority in the ongoing Lok Sabha elections, raising concerns among investors.
At the interbank foreign exchange market, the rupee opened on a weak note at 83.25 and fluctuated between a high of 83.23 and a low of 83.59 against the dollar during the trading session. This marked a sharp decline from the previous close of 83.14 on June 3.
The election vote count indicated that the BJP-led National Democratic Alliance (NDA) faced heavy losses in its strongholds of Uttar Pradesh, Haryana, and Rajasthan. Despite gains in states like Odisha, Telangana, and Kerala, the Bharatiya Janata Party (BJP) was leading in only 236 seats, falling short of the majority mark. This contrasted sharply with the previous election, where the BJP secured 303 seats and the NDA collectively held over 350 seats. The opposition INDIA alliance was leading in about 230 seats.
“The rupee depreciated today as domestic markets fell sharply amid uncertainty over election results outcome. This may have also led to some sell-off by foreign investors,” noted Anuj Choudhary, a Research Analyst at Sharekhan by BNP Paribas. “The US dollar recovered from yesterday’s losses
due to a weak Euro, which fell on disappointing employment data. The US dollar had initially fallen on weaker-than-expected ISM manufacturing PMI and construction spending data,” Choudhary added.
Meanwhile, the dollar index, which measures the greenback’s strength against a basket of six currencies, was trading 0.17 percent higher at 104.25. This further pressured the rupee as the global currency dynamics shifted in favor of the dollar.
The domestic equity market experienced a significant downturn, with the 30-share BSE Sensex plummeting 4,389.73 points, or 5.74 percent, to close at 72,079.05. The broader NSE Nifty also took a hit, tumbling 1,379.40 points, or 5.93 percent, to 21,884.50. This sharp decline in the equity markets was attributed to investor anxiety over the political landscape and potential policy uncertainties.
Additionally, Brent crude futures, the global oil benchmark, dropped 1.88 percent to USD 76.89 per barrel, reflecting broader market concerns and a potential slowdown in global demand.
Despite the day’s turmoil, foreign investors were net buyers of Indian equities on June 3, purchasing shares worth Rs 6,850.76 crore on a net basis. Foreign Institutional Investors (FIIs) bought shares worth Rs 23,451.26 crore and sold equities worth Rs 16,600.50 crore in the cash segment, indicating ongoing interest in the Indian market despite the immediate volatility.
As India awaits the final election results, market participants remain cautious, keeping a close watch on political developments and their potential impact on the economy and financial markets. The Reserve Bank of India’s upcoming monetary policy decisions will also be critical in navigating the currency’s trajectory amid the prevailing economic and political uncertainties.