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The rupee rose 2 paise to 83.96 against the U.S. dollar in early trade on Wednesday (September 4, 2024) aided by a weakening dollar against major currencies overseas and a drop in crude oil prices.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was down 0.14% to 101.67.

Brent crude, the international oil benchmark, declined 0.62% to 73.29 in futures trade.

At the interbank foreign exchange market, the rupee opened at 83.96, higher by 2 paise from its previous close and stayed put. The unit had settled at 83.98 against the U.S. dollar on Tuesday.

“Amid the backdrop of this week’s jobs data, U.S. markets experienced a significant sell-off yesterday as investors sought refuge accompanied by a sharp drop in oil prices,” CR Forex Advisors Managing Director Amit Pabari said.

Meanwhile, in the domestic equity markets, Sensex tumbled 721.75 points to 81,833.69 in early trade, while Nifty tanked 196.05 points to 25,083.80.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Tuesday, as they purchased shares worth ₹1,029.25 crore, according to exchange data.

Gold price plunged ₹350 to ₹60,150 per 10 grams in the national capital on Monday amid weak cues in international markets, according to HDFC Securities.

The precious metal had closed at ₹60,500 per 10 grams in the previous trade.

Silver also declined ₹300 to ₹74,000 per kg.

In the global markets, both gold and silver were quoting lower at $1,912 per ounce and $22.50 per ounce, respectively.

“Gold failed to capitalise on the previous week’s strong gains as traders locked in their profits after a recent rally in prices,” Saumil Gandhi, senior analyst of commodities at HDFC Securities, said.

A policy brief argued for a rational trade policy to contain food inflation which takes into account both consumers and producers.
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A policy brief issued by the Indian Council for Research on International Economic Relations said that the recent steps taken by the government to curb inflation, such as wheat and rice export bans and increasing export duties, were “knee-jerk approaches rather than a well-thought-out strategy”. It argued for a rational trade policy to contain food inflation which takes into account both consumers and producers.

In August 2023, retail inflation accelerated to 6.83%, which is higher than the ceiling of 6%. As food and beverages carry a 57% weightage in India’s retail inflation calculation, and food inflation was 9.94%, rapid acceleration in that segment had a severe impact on retail inflation (Chart 1).

Chart 1 | The chart shows the trend of retail inflation (dark blue) and food inflation (light blue) over time.

Chart appears incomplete? Click to remove AMP mode.

To date, the Indian government has implemented a series of actions aimed at controlling food inflation such as prohibiting the export of wheat in May 2022 and halting the export of broken rice in September 2022. Additionally, in June 2023, the government imposed stocking limits on wheat traders and millers. In July 2023, an export ban was placed on non-basmati white rice, followed by a 20% export duty on parboiled rice. In August 2023, a Minimum Export Price of $1,200 per tonne was set for basmati rice, along with a 40% export duty on onions.

Chart 2 | The chart shows the chronology of trade and domestic stock policy measures to tame the inflation of rice and wheat. 

Due to heatwaves, the production of wheat has suffered in the last two years. Wheat procurement by the government has also been low in the last two cycles. Wheat inflation was 9.22% in August. All this prompted the government to ban wheat exports in May 2022, argues the brief. “But this sudden ban on wheat exports, instead of bringing wheat inflation down, led to greater uncertainty in the market and wheat inflation surged to 15.7 per cent in August 2022, when GOI also banned exports of wheat flour (atta) products,” says the policy brief. Just before the harvest season, wheat inflation accelerated to 25.4% in February 2023. Following this, the government off-loaded wheat under the Open Market Sales Scheme at much cheaper prices and announced wheat stocking limits, according to the policy brief. While these measures did bring down inflation, the report argues that the implications of such measures on farmers who bore the brunt have to be taken into account.

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Chart 3 | The chart shows trends in cereal exports in India. 

Data from the report shows that non-basmati exports increased from 1.38 MMT in FY20 to 6.40 MMT in FY23, by 363%. The report argues that in the fiscal year 2023, the per-tonne export value for non-basmati rice stood at $344, falling below India’s Minimum Support Price (MSP) for rice. This indicates that millers may be sourcing rice directly from farmers or that there could be an increase in rice supply due to potential distribution leakages from the expanded PMGKAY free rice programme. 

Chart 4 | The chart shows the offtake of rice and wheat under the National Food Security Act and PMGKY from the central pool. 

Chart 3 and Chart 4 underscore the growth in rice and wheat offtake within the last three years, as well as the significant rise in grain exports from India over the same time period.

In July 2023, when rice inflation was 13%, the government banned the export of non-basmati rice. Yet, inflation remained at 12.5%. Rather than imposing export duty and gradually increasing its impact, the government called for a ban which created panic among the African and Indian diaspora in the U.S., according to the report.

Source: A report called “Tackling food inflation: Is restricting exports and imposing stocking limits the optimal policy?” published by the Indian Council for Research on International Economic Relations

Also read | Data | Heat wave in Punjab may curtail India’s wheat exports

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Equity benchmark indices Sensex and Nifty closed higher for the third straight day on Tuesday on gains in market heavyweights ITC, Reliance Industries and Infosys amid a bearish trend in global equities.

Besides, robust domestic macroeconomic data added to the positive momentum, traders said.

The BSE benchmark index climbed 152.12 points or 0.23% to settle at 65,780.26. During the day, it gained 203.56 points or 0.31% to 65,831.70.

The Nifty rose 46.10 points or 0.24% to end at 19,574.90.

“Strong domestic factors are providing crucial support for Indian equities, allowing them to maintain their strength despite attempts by weak global peers to disrupt the mood. India’s service PMI remains robust at 60.1, indicating sustained demand even in the face of inflationary pressures.

“Notably, small and mid-cap stocks have been standout performers, with both indices reaching all-time highs. Conversely, the weak Chinese service PMI has cast a shadow on hopes of an economic rebound in China, impacting global market sentiments,” said Vinod Nair, Head of Research at Geojit Financial Services.

Sun Pharma emerged as the biggest gainer from the Sensex pack, climbing 2.09%, followed by ITC, Titan, Bajaj Finance, Nestle, Infosys, L&T, JSW Steel, Reliance Industries and Kotak Mahindra Bank.

UltraTech Cement, Maruti, HDFC Bank, Wipro, State Bank of India and NTPC were among the laggards.

“Markets held on to gains for the 3rd straight day but strong follow-through buying was, however, missing albeit lack of positive Asian cues. The positive takeaway was that the benchmark Nifty stuck to gains as Nifty Mid-cap and Small-cap indices continued to scale fresh all-time highs.

“The risk mood has improved after Friday’s softer than expected US August payrolls report which suggests that September rate hike is off the table,” Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, said.

In the broader market, the BSE midcap jumped 1.09%, and smallcap gained 0.61%.

Sectorally, healthcare rallied 1.29%, realty climbed 1.08%, energy (1.01%), consumer durables (0.90%), oil & gas (0.83%) and services (0.72%).

Financial Services, telecommunication and bankex were the laggards.

“Global equities mostly fell on Tuesday as higher Treasury yields weighed on growth stocks, while a slow pace of expansion in services activity in China (8-month low) stoked worries over demand in the world’s second-largest economy,” Deepak Jasani, Head of Retail Research, HDFC Securities, said.

In Asian markets, Tokyo settled in the green, while Seoul, Shanghai and Hong Kong ended in the negative territory.

European markets were trading on a mixed note in early deals. The U.S. markets were closed on Monday.

“While markets extended gains for the third straight session, the mood was more or less range-bound with a positive bias as U.S. markets were shut on Monday and investors preferred to take selective bets. One needs to be watchful about the sharp volatility in the rupee, which could impact FII flows going ahead,” Shrikant Chouhan, Head of Research (Retail), Kotak Securities Ltd, said.

The rupee plunged by 35 paise to close at 83.06 (provisional) against the U.S. dollar on Tuesday, amid a strong American currency and higher crude oil prices.

According to a survey, manufacturing activities in India gained momentum in August.

Meanwhile, GST collections grew by 11% to over ₹1.59 lakh crore, and domestic passenger vehicle sales hit a record in August.

Global oil benchmark Brent crude declined 0.62% to $88.45 a barrel.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹3,367.67 crore on Monday, according to exchange data.

The BSE benchmark had climbed 240.98 points or 0.37% to settle at 65,628.14 on Monday. The Nifty advanced 93.50 points or 0.48% to close at 19,528.80.

“We expect the broader market participation to continue to outperform and sector rotation is helping Nifty to stay elevated. On the upside we expect the Nifty to target levels of 19650. In terms of levels, 19490 – 19470 shall act as a crucial support and 19650 – 19700 shall act as an immediate hurdle,” Jatin Gedia – Technical Research Analyst at Sharekhan by BNP Paribas, said.