A currency trader is pictured through the symbol for the Indian Rupee on the floor of a trading firm in Mumbai. File photo
| Photo Credit: REUTERS

Rupee depreciated 11 paise to 83.93 against the US dollar in early trade on Thursday (October 3, 2024) due to rising crude oil prices and negative sentiment in the domestic equity markets amid concerns over escalating tension in the Middle East.

Unabated outflow of foreign funds from capital markets and a strengthening American currency also weighed on the Indian currency, forex traders said.

At the interbank foreign exchange, the local unit opened at 83.91 and lost further ground to touch 83.93 against the greenback, trading 11 paise lower from its previous session’s closing level.

On Tuesday, the rupee settled 3 paise lower at 83.82 against the American currency. The forex markets were closed on Wednesday on account of Mahatma Gandhi Jayanti.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.10 per cent to 101.53.

Brent crude, the international benchmark, climbed 1.11 per cent to 74.72 in futures trade.

Experts attributed the spike in crude prices to fear of Israeli attacks on Iran’s oil installations amid escalating tension in the Middle East.

On the domestic equity market front, the Sensex tumbled 829.97 points or 0.09 per cent to 83,436.32, while the Nifty tanked 270.65 points or 1.05 per cent to 25,526.25.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, offloading shares worth ₹5,579.35 crore on a net basis in the cash segment, according to exchange data. FIIs have sold shares worth over ₹15,000 crore since Monday.

Analysts said foreign investors withdrew funds as Chinese stocks turned bullish after the country announced a slew of stimulus measures to revive the economy.

On the domestic macroeconomic front, a monthly survey released on Tuesday showed India’s manufacturing sector growth fell to an eight-month low in September amid a softer increase in factory production, sales and new export orders.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell from 57.5 in August to 56.5 in September, registering the weakest pace of growth since January.

Finance Minister Nirmala Sitharaman. File
| Photo Credit: PTI

Amid the sustained slump in India’s exports, the Goods and Services Tax (GST) Council has cleared a few measures to boost foreign trade, including enabling tax credits for services exporters receiving payments in rupees, critical for trade with countries like Iran and Russia that face global sanctions.

The government has been pushing for rupee-based trading arrangements with several countries to reduce the dependency on the U.S. dollar, and banks from over 20 nations have opened special rupee (INR) Vostro accounts with Indian banks to remit payments for their imports from India. However, many exporters of such services were being denied input tax credits under the GST regime as the norms required foreign currency receipts to recognise the ‘export’ status.

“The Council has recommended to issue a circular to clarify the admissibility of export remittances received in Special INR Vostro account, as permitted by the Reserve Bank of India, for the purpose of consideration of supply of services to qualify as export of services under the Integrated GST [IGST] Act, 2017,” the Finance Ministry said in a statement after Saturday’s meeting of the GST Council.

There were disputes arising from refund applications, where the GST officers would seek to deny the benefit on the ground that receipt of consideration in INR did not meet the condition prescribed for the purpose of qualifying as ‘exports of services’, explained Sanjay Chhabria, director, indirect tax at Nexdigm.

“This clarification will bring respite to the exporters whose refunds of GST were stuck for a long time on account of the disputes in respect of this particular aspect, and they were also being subjected to GST demands,” said Saurabh Agarwal, tax partner at EY.

Shashi Mathews, partner at Induslaw, said the proposed clarification shall particularly help firms which are seeking to receive export proceeds from Iran or Russia, which have U.S. sanctions imposed on regular remittance routes.

Relief for SEZ suppliers

Separately, the Council also decided to undo the effects of a July 31 notification that had made it difficult for firms supplying goods or services to special economic zones (SEZs) to claim tax refunds.

Mr. Chhabria said this move seeks to rectify an anomaly arising out of an inadvertent omission of such category of supplies from the option of refund with payment of tax, after amendments were made to the IGST Act.

“With the explicit inclusion of such supplies for rebate, the ambiguity on this comes to a rest and helps prevent apprehended potential working capital concerns for domestic industry engaged in SEZ supplies,” remarked Abhishek Jain, indirect tax head and partner at KPMG.

The Council has also recommended issuance of a circular to clarify the place of supply treatment for services entailing transportation of goods, including by mail or courier, in cases where the location of supplier or the location of recipient of services is outside India. The communique is also expected to clarify issues relating to supply of advertising and co-location services.

Industry has been awaiting clarifications on the export of goods by mail or courier for some time now, but the fine print will have to be studied to assess the impact, said Mahesh Jaising, partner and leader, indirect tax, at Deloitte India. “It is unclear if clarifications on advertising and co-location are in relation to export or domestic place of supply,” he added.

A money lender counts Indian rupee currency notes at his shop in Ahmedabad. File
| Photo Credit: REUTERS

The rupee depreciated 3 paise to settle at 83.23 (provisional) against the U.S. dollar on Wednesday, as a muted trend in domestic equities and sustained foreign fund outflows weighed on investor sentiments.

Forex traders said the strength of the American currency in the overseas market further dented investor sentiments.

At the interbank foreign exchange market, the local unit opened at 83.22 against the U.S. dollar and moved in a range of 83.27 to 83.19.

The rupee finally settled at 83.23 (provisional) against the U.S. dollar, down 3 paise from its previous close.

On Tuesday, the rupee had settled at 83.20 against the dollar.

“The Indian rupee declined on weak domestic markets and further selling by FIIs. However, softening of US dollar cushioned the downside,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

Mr. Choudhary further said that the U.S. dollar eased from a near 11-month high as investors are likely to narrow their positions ahead of U.S. non-farm payrolls data later this week.

“We expect the rupee to trade with a negative bias amid risk aversion in global markets and a hawkish tone of most Federal Reserve officials,” Mr. Choudhary said.

However, softening of crude oil prices may cushion the downside.

“Any intervention by the RBI may also support rupee at lower levels. Traders may take cues from Services PMI, ADP non-farm employment and factory orders from the U.S.,” he said.

Market participants may remain cautious ahead of the Reserve Bank’s monetary policy decision later this week.

The RBI governor-headed six-member Monetary Policy Committee (MPC) started its three-day meeting on Wednesday. Governor Skhatikanta Das will announce the decision on Friday (October 6).

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, fell by 0.21% to 106.77.

Brent crude futures, the global oil benchmark, declined 0.95% to $90.06 per barrel.

On the domestic equity market front, the 30-share BSE Sensex closed 286.06 points or 0.44% lower at 65,226.04. The broader NSE Nifty declined 92.65 points or 0.47% to 19,436.10.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday as they offloaded shares worth ₹2,034.14 crore, according to exchange data.

The rupee continued its downward movement for the second straight day and fell by 8 paise to 83.21 against the US dollar in early trade on Tuesday, September 26, 2023 amid massive selling by foreign equity investors and a firm American currency.

Subdued equity market sentiment and elevated level of crude oil prices ¬ hovering above USD 92 a barrel ¬ also put downside pressure on the Indian currency, forex traders said.

At the interbank foreign exchange, the domestic unit opened at 83.19 and hit the lowest level of 83.23 against the greenback. It later traded at 83.21 against the dollar, registering a fall of 8 paise from its previous close.

On Monday, the rupee declined by 19 paise to close at 83.13 against the dollar.

Analysts attributed the downward movement of the rupee to a strengthening dollar amid increased month-end demand of the American currency by importers and rising US Treasury yield.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.05 per cent to 106.07.

Brent crude futures, the global oil benchmark, was trading 0.45 per cent to USD 92.87 per barrel.

In the domestic equity market, the 30-share BSE Sensex was trading 15.76 points or 0.02 per cent lower at 66,007.93 points. The broader NSE Nifty declined 10.55 points or 0.05 per cent to 19,664.00.

Foreign Institutional Investors (FIIs) were net sellers in the capital market on Monday as they offloaded shares worth ₹2,333.03 crore, according to exchange data.