July 24, 2024
New Delhi, India
Rupee Analysis
The Indian Rupee (INR) weakened during Wednesday’s early European session despite an improvement in India’s HSBC Manufacturing and Services PMI for July. The Rupee’s decline was driven by Finance Minister Nirmala Sitharaman’s announcement of increased capital gains tax, which exerted selling pressure on the INR.
Stronger PMI Data: India’s business activity saw a boost in July, with the advanced reading of the HSBC Manufacturing PMI climbing to 58.5 from 58.3 in June. Similarly, the Services PMI improved to 61.1 from 60.5 in the same period. Despite these positive indicators, the INR failed to strengthen against the Greenback.
Tax Announcement Impact: The INR’s potential upside was limited following Sitharaman’s announcement to raise capital gains tax on equity investments and equity derivative trades during the Budget Session of Parliament. This move added to the selling pressure on the INR.
Market Interventions: There is speculation that the Reserve Bank of India (RBI) might intervene in the market to prevent further depreciation of the local currency. Additionally, the recent fall in crude oil prices could help mitigate the INR’s losses.
US PMI Data: Investors are closely watching the preliminary US S&P Global Purchasing Managers Index (PMI) for July, which is due later on Wednesday. The Manufacturing PMI is expected to improve slightly to 51.7 from 51.6 in June, while the Services PMI is forecasted to ease to 54.4 from 55.3.
India’s benchmark equity indexes, the BSE Sensex and Nifty 50, experienced significant losses on Tuesday, closing slightly lower after falling more than 1% earlier in the day. During the Budget Session of Parliament, Sitharaman announced changes including raising the Securities Transaction Tax on futures and options to 0.02% and 0.01%, respectively. Long-term capital gains on all financial and non-financial assets will be taxed at 12.5%, with the exemption limit for capital gains set at ₹1.25 lakh. The government also plans to reduce customs duty on gold and silver to 6%, and platinum to 6.4%. To promote the INR for overseas investments, the Indian government will simplify rules and regulations for External Development Initiatives (EDI). India’s budget aims to balance higher spending on job creation and rural development with a reduced fiscal deficit target of 4.9% of GDP, down from 5.1% in the February interim budget, according to Reuters. In the US, Existing Home Sales dropped by 5.4% MoM in June, from 4.11M to 3.89M, which was worse than expected. Additionally, the Richmond Fed Manufacturing Index came in at -17 in July versus -10 prior.
At the time of writing this article, USDINR was thovering over Rs. 83.697 -0.005(-0.01%).
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