Strong Rupee Outlook Amidst Equity Inflows and Robust Forex Reserves

The Indian rupee is projected to remain stable in the range of Rs 90.40-91.20 against the US dollar in the upcoming week, according to Union Bank of India. Sustained equity inflows and enhanced structural factors are seen as key supports for the currency's valuation.

The report suggests that continued equity inflows could potentially push the rupee towards Rs 90.10 per US dollar, with Rs 90.40 acting as a critical interim support. The finalization of the India-US BTA has also meaningful implications for the rupee's threshold. Resistance is expected around Rs 90.90, with a breach likely triggering a rise towards Rs 91.20.

The influence of Artificial Intelligence on India's services export landscape is noted as a positive structural factor for the rupee, potentially increasing export competitiveness and leading to more USD inflows. However, there are cautions about near-term risks posed by ongoing shifts in traditional IT outsourcing models.

Despite a stable performance in the previous week within a narrow trading range of Rs 90.60-90.70 per dollar, factors such as a significant trade deficit and foreign institutional investor outflows pose challenges. Nonetheless, investor sentiment remains fortified by India's strong macroeconomic fundamentals and record-high foreign exchange reserves.

While global and sector-specific developments could impact near-term volatility, the report concludes that sustained capital inflows, burgeoning services exports, and formidable forex reserves should bolster the rupee's strength in forthcoming weeks.