USD/INR Off Tuesday Highs, Early Equity Trends Better Than Yesterday

USD/INR is tracking modestly lower in early Wednesday dealings. We are back under 83.50, but only 0.1% stronger in Rupee terms. Tuesday highs were around 83.53, which were just below earlier YTD highs of 83.575.

• Yesterday saw a near 6% fall in onshore equities, the largest drop in 4yrs as Modi's government failed to secure an outright majority. A coalition around Modi's BJP-led alliance will be needed for Modi to continue as PM.
• Offshore investors sold around $1.5bn of local equities yesterday, nearly double the inflows seen on Monday's session (when exit polls suggested a strong Modi win).
• Early tones for equities look better today, with onshore markets opening more than 1% higher.
• For USD/INR, we continue to expect the RBI to manage volatility. Near term focus is likely to rest on if moves above 83.50 continue to draw firm selling interest. 1 month implied USD/INR vol is around 3.23%, with recent highs marked around the 3.50% region. The 1 month risk reversal remains elevated last at 0.97. This is fresh highs back to 2022.
• Coming up on the data front, we have final May services and composite PMI reads from HSBC.