Rupee sinks to record low amid crude oil rally and US-Iran war fears — What's the outlook ahead?

The Indian rupee slipped to a fresh lifetime low on Friday, March 13, as escalating geopolitical tensions in the Middle East and rising crude oil prices rattled financial markets. The sharp spike in oil prices has raised concerns about India’s economic outlook, given the country’s heavy dependence on energy imports.

The domestic currency weakened to 92.39 per dollar, breaching its previous record low of 92.3575 recorded in the previous session. Since the conflict involving Iran intensified, the rupee has declined by more than 1%, reflecting rising pressure on emerging market currencies.

Apart from geopolitical tensions, the rupee also came under pressure from a stronger US dollar, persistent foreign institutional investor (FII) selling and weak domestic equity markets. However, analysts noted that the rupee has still fared better than several other emerging market currencies due to timely intervention by the Reserve Bank of India (RBI).

"After stumbling to a historic low, the Rupee recouped some ground, anchored by central bank support and a pullback in oil benchmarks. Though the rupee stabilised, the overarching momentum stays skewed to the downside. The spot USDINR has resistance near 92.50, with downside protection hovering at 91.60," said Dilip Parmar – Senior Research Analyst, HDFC Securities.

Analysts expect the currency to remain volatile in the near term as global cues and macroeconomic data continue to influence market sentiment.

Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said that for now, the expected trading range for the rupee is 91.45–92.75.

Bond yields rise as RBI steps in

India’s bond market also remained under pressure, with yields edging higher in early trade. The benchmark 6.48% 2035 bond yield climbed to 6.679%, compared with 6.669% in the previous session. Bond yields move inversely to prices, meaning rising yields indicate selling pressure in the bond market.

According to a Reuters report, the RBI plans to purchase bonds worth ₹50,000 crore later in the day, marking its second such operation this week. Earlier this week, the central bank and long-term investors had purchased bonds worth ₹53 billion, providing some support to the market amid heightened volatility.

Indian stock market under pressure

Indian equities also extended their losses on March 13, mirroring weakness in global markets as investors reacted to the prolonged Iran conflict and surging crude oil prices.

The Sensex dropped as much as 963.75 points or 1.26% to hit an intraday low of 75,070.66, while the Nifty fell 333.4 points or 1.4% to 23,305.75. Broader markets were also weak, with the Nifty Midcap and Nifty Smallcap indices trading about 1% lower.

The selloff wiped out nearly ₹6.5 lakh crore in investor wealth, with the total market capitalisation of companies listed on the BSE dropping to ₹433.77 lakh crore, down from ₹440 lakh crore earlier.

"With the heightened uncertainty surrounding the West Asian conflict continuing, globally markets are weak and in unchartered territory. Weakness in the US markets indicate that rebound in the market is some time away. With Brent crude around $100, bulls are on the defensive. With the FIIs persisting with their sustained selling strategy, even largecap bluechips are under pressure. There is nothing much investors can do in this challenging times other than remaining calm and continuing with systematic investment," VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

Meanwhile, inflation data released by the government showed that retail inflation rose to 3.21% in February, compared with 2.74% in January, largely due to rising food prices.

Exchange data also showed that FIIs sold equities worth ₹7,049.87 crore on Thursday, while domestic institutional investors (DIIs) purchased stocks worth ₹7,449.77 crore, helping cushion the fall in the market.

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