Falling Rupee and Stock Markets Hamper India’s Growth

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Muscat: With the Indian rupee at rock bottom and stock markets falling, an industry expert said that like other countries, India could enter an economic downturn.

“This is evidenced by India’s central bank’s reduced growth projections during which the stock market may enter consolidation,” said Farah Mourad, senior market analyst at XTB Mena.

“This is especially true as inflation remains elevated and central banks continue to tighten monetary policy. As a result, the rupiah may continue to depreciate against the dollar as the latter is backed by the Federal Reserve,” she added.

As the rupee comes under further pressure, the Indian authorities have also raised interest rates, which could help support it by narrowing the interest rate differential against the dollar.

“Such an operation was successfully executed by the Russian central bank to consolidate its currency after the invasion of Ukraine. Establishing rupee regulations for India’s large oil imports could also reduce pressure on the currency. A more stable currency could help attract foreign investors to the stock market and support prices,” she added.

Although Indian expats in Oman and other GCC countries can benefit from a higher exchange rate for the rupee, Farah Mourad warned that the lower exchange rate will mean that imported goods will cost more in India. . “This is particularly the case for oil and its derivatives and crude prices have risen sharply in dollar terms and this is exacerbated by the fall in the rupee,” she added.

Asked about the fair rupee-dollar exchange rate, she said the market exchange rate for the rupee is determined by supply and demand and global economic conditions. For the moment, these conditions are favorable to the US dollar, which is seeing its value appreciate. “However, the rupee could see the tide turn in its favor as the Federal Reserve ends its tightening cycle, leaving room for the economy to grow and demand for Indian goods to expand,” he said. she adds.

Elaborating on the aggressive rate hike by the US Fed and its implications for Oman and other Gulf Cooperation Council (GCC) countries, the Senior Market Analyst at XTB MENA, said: “The policy tightening US monetary spread to Oman and other GCC countries as well, as growth and global trade are expected to slow.

“At the same time, weaker growth could lead to lower demand for energy, which is the region’s main export product. In this regard, oil and natural gas prices could continue to fall, impacting tax revenues and business results,” she added.

Central banks around the world are raising interest rates to fight inflation, and among them is the Federal Reserve. And just like the Fed, central bankers are determined to reduce inflation at all costs even if the economy slows down. This economic slowdown is expected to affect all economies, including India, which could see its exports to the United States, Europe and China decline. The United States is India’s largest export market and a significant decline in activity there could have a significant impact on Indian industries.

Asked if the move had put additional pressure on Indian stock markets, she said the rise in interest rates had effectively eroded investor confidence, which could take refuge in safer assets and avoid international markets like Indian stock markets. In this regard, foreign investors have massively abandoned Indian equities and may continue to do so as risk aversion rises. “This would lead to fewer inflows to support current price levels. At the same time, the economic slowdown could put pressure on corporate margins, which could make local investors more cautious towards equities,” he said. -she adds.

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