Free Trial

Stocks Rebound as Potential Coalition Outcomes Emerge

INDIA

Wednesday has marked another turbulent session for Indian assets, with the major equity indices partially reversing some of yesterday’s sell-off while the rupee trades on firmer footing.

  • The Nifty and Sensex indices are each up around 3%, though are overall little changed on the week. Equities initially rallied at the start of the week after exit polls showed Modi’s party was likely to win the election by a comfortable margin. However, the rally more than reversed after the result proved to be tighter than the polls implied. Today’s price action was likely triggered by a key ally of Modi’s political alliance, the Telugu Desam Party, affirming its support for the formation of the next government.
  • USD/INR sits moderately lower on the week, reflecting the boosted sentiment on the back of the rebound in stocks. The pair has traded on either side of the 20- and 50-day EMAs over the past few sessions, trading near the latter at typing. Topside focus remains on May’s all-time high of 83.5750, while a clear break of Monday’s low of 82.9512 could instead bolster bearish sentiment.
  • Nevertheless, analysts continue to flag that RBI intervention is likely to limit USD/INR momentum in either direction. Commerzbank note that we “could see RBI step up intervention to limit excessive INR weakness on potential capital outflows”, while JP Morgan have said “near-term rates and FX impact likely to be muted by active RBI management and index inclusion related passive flows.”
238 words

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.

Wednesday has marked another turbulent session for Indian assets, with the major equity indices partially reversing some of yesterday’s sell-off while the rupee trades on firmer footing.

  • The Nifty and Sensex indices are each up around 3%, though are overall little changed on the week. Equities initially rallied at the start of the week after exit polls showed Modi’s party was likely to win the election by a comfortable margin. However, the rally more than reversed after the result proved to be tighter than the polls implied. Today’s price action was likely triggered by a key ally of Modi’s political alliance, the Telugu Desam Party, affirming its support for the formation of the next government.
  • USD/INR sits moderately lower on the week, reflecting the boosted sentiment on the back of the rebound in stocks. The pair has traded on either side of the 20- and 50-day EMAs over the past few sessions, trading near the latter at typing. Topside focus remains on May’s all-time high of 83.5750, while a clear break of Monday’s low of 82.9512 could instead bolster bearish sentiment.
  • Nevertheless, analysts continue to flag that RBI intervention is likely to limit USD/INR momentum in either direction. Commerzbank note that we “could see RBI step up intervention to limit excessive INR weakness on potential capital outflows”, while JP Morgan have said “near-term rates and FX impact likely to be muted by active RBI management and index inclusion related passive flows.”