Mumbai: The Indian rupee gained some ground against the US dollar on Friday as lower oil prices and strong investor demand for the National Stock Exchange of India's initial public offering offered some relief to the currency.
The rupee was trading around Rs 95.78 against the dollar on Friday, after closing at Rs 95.93 on Thursday. The currency had fallen to Rs 96.10 on Thursday before recovering later in the session.
The recovery remained limited as investors continued to watch oil prices, global interest rates and the outlook for India's monetary policy. The rupee remains close to the Rs 96 level, which has become an important focus for currency traders.
Oil prices have fallen for three consecutive sessions, offering some relief to India, which is heavily dependent on imported crude oil. Brent crude was trading around $102.53 a barrel in Friday trading, while US West Texas Intermediate crude was around $100.04.
The decline in oil prices followed signs that some disrupted supplies from the Middle East could reach international markets through alternative routes. However, oil remains above $100 a barrel and the wider conflict in the region continues to pose risks to global energy supplies.
The rupee is also being supported by expectations of foreign investment linked to the $2.3 billion initial public offering of the National Stock Exchange of India. The IPO opened for subscription on September 17 and will remain open until September 21.
Demand for the issue increased on Friday. The portion reserved for qualified institutional buyers was fully subscribed on the second day of bidding. By 12:30 p.m. IST on Friday, the overall issue had received subscriptions equal to about 89% of the shares on offer.
The strong institutional demand could bring additional foreign currency into India as overseas investors participate in the issue. However, the exact amount of foreign currency that will enter the country as a result of the IPO, and its direct effect on the rupee, cannot yet be determined.
The NSE issue is an offer for sale by existing shareholders. The entire value of the IPO should therefore not be viewed as new capital being raised by the exchange itself.
The rupee has faced pressure in recent weeks as higher oil prices increased India's import costs and the US dollar strengthened. The currency's movement has also been influenced by international capital flows and expectations about interest rates in India and the United States.
Traders have reported dollar selling by state run banks around the Rs 96 level. Market participants believe such activity may be linked to support from the Reserve Bank of India, although individual interventions are not normally announced by the central bank.
India has a substantial foreign exchange reserve buffer. Reserve Bank of India data showed that the country's foreign exchange reserves stood at about $785.7 billion in the week ended September 4, a record level.
The high level of reserves gives the central bank a significant buffer in managing external pressures. However, it does not remove the risks created by high oil prices, movements in the US dollar or changes in international investment flows.
Global monetary policy is another factor affecting the rupee. The US Federal Reserve raised its benchmark interest rate by a quarter of a percentage point on September 16, taking its target range to 3.75% to 4%. The Federal Reserve said inflation remained elevated and indicated that future decisions would depend on economic conditions.
Higher US interest rates can increase the attraction of dollar assets and put pressure on emerging market currencies, including the rupee. India's own monetary policy is also being closely watched as investors assess the effects of energy prices and inflation.
The recent movement in the rupee reflects several forces operating at the same time. Lower oil prices and expected foreign investment linked to the NSE IPO are providing some support, while high energy costs, global interest rates and geopolitical risks continue to create pressure.
The NSE IPO is scheduled to close on September 21. Its final subscription level and the foreign investment that follows will provide a clearer picture of how much support the issue may provide to India's currency.
For now, the rupee remains close to the Rs 96 level, with oil prices, foreign investment and Reserve Bank of India action likely to remain key factors for the currency in the coming days.