Home Finance Rupee Becomes Asia’s Second Strongest Currency Through Stock Sales

Rupee Becomes Asia’s Second Strongest Currency Through Stock Sales

Indian Rupee is back to being a strong currency and it couldn't be at a better time!

With massive foreign currency inflows for stock purchases, the Indian economy is looking at a massive upward trend by the fourth quarter of the fiscal year. 

The Indian Rupee was dubbed as the worst-performing Asian currency last year with the currency’s value hovering near the 75 rupees per dollar mark since March 2020. However, with the stock inflow, the Indian Rupee has perceived growth in its value to 72.57 INR per dollar last week.

This has posed to be the result of the massive foreign investment that numerous domestic stocks are being made privy to, as can be seen with investors purchasing about 4 billion dollars worth of stocks in the past month. 

The sudden injection of massive investments in Indian stocks has made the Indian Rupee one of the strongest currencies in Asia, as of now. The Indian stock market witnessing the second most stock purchases in Asia, with China leading the pack.

This has brought about the question concerning the suddenness of the growth and impending fears from the Reserve Bank of India owing to the uncertainty of the share market.

The expansive budget and recovering economy of India have lured in a myriad of foreign investors who have set their eyes on growing alongside the Indian economy. 

Investment Inflows In The Indian Stock Market

The rupee has turned a significant corner, with yesteryear’s financial woes being wiped over for a clean slate with the first quarter of this year’s economic state recording significant growth.

Numerous foreign and domestic investors have sought to invest in Indian stocks owing to India’s financial policies becoming more pro-privatization alongside its recovering economy.

However, it goes without saying that the stock market is an unpredictable indicator of a country’s economic growth and stability.

Rising to about 0.6% of its value per US Dollar, the Indian Rupee has recorded a growth of 72.57 INR per US Dollar, which has amounted to a record highest value since March last year. This, itself, is being considered to be the be-all and end-all of India’s argument encompassing its financial growth.

Economists have stated that the INR may keep rallying against the USD to a much better growth rate by the end of the fourth quarter and close the gap between the two currencies even further. 

Value trend on the growth/decline in USD/INR

With stock purchases recording about $4 billion dollars in the last month itself, it is still to be seen how far the stock market is to stand stable in the face of massive investment inflows.

The previous closing quarter of the SENSEX recorded 50,000 points, which intermittently has stood as the defining point of the growing worth of the Indian stock market, and in essence, the Bombay Stock Exchange.

Furthermore, what it instates is the further application of investments in the stock exchange as an instrument to measure a nation’s economic growth.

This very intimation of the stock market has brought about the fruit of woes for the Reserve Bank of India, the apex financial institution of the nation. 

Financial Woes Of RBI

The Reserve Bank of India, through all its years, has sought to put the Indian currency forward and compete in the international markets. However, owing to the previous year’s economic performance, the Reserve Bank could barely hold itself together with the horrifying state of the INR.

The currency had recorded a value of 76.95 INR per USD in the month of April last year (highest) while it closed at 73.02 INR per USD by the end of December.

This slump and eventual growth were perceived as an effect of the pandemic that the entire world had seen itself stranded in, and the eventual easing of the lockdown. 

Also Read: With The Sale Of Dighi Port To Adani, Is India On The Verge Of Radical Capitalism?

The RBI, however, still seeks to tread carefully due to the potential instability that may be brought upon by the uncertainty of the stock market. The RBI’s accumulation of the American Dollar in the fiscal year of 2020, was also perceived to be a major detriment to the Indian Rupee’s cumulative value.

Nomura Holdings Inc., a financial holdings company based out of Japan, estimated that the RBI had purchased a whopping $126 billion from the currency market in 2020, which was about 4% of the country’s GDP, which resulted in a major debacle for the worth of the Indian currency, and foreign investment inflows.

Governor of the RBI, Shaktikanta Das, has been extremely vocal through actions concerning India’s foreign reserves

The RBI has further stood strong in tandem with its stand on its purchase of USD in the currency market, and as signalled by Governor Shaktikanta Das, it is not going to stop its accumulation of foreign reserves any time soon.

Perceivably it is for the better since most conglomerates are of the opinion that they are to tread cautiously concerning the uncertainty posed by the financial market of today. 

Can Stock Market Be Used As An Indicator For Financial Growth?

The question has no clear-cut answer as such, however, it shall be discerned that the stock market is one that is fueled by uncertainty and whopping financial investments that are beyond the ordinary do turn into severe obstacles for the country’s overall growth.

The Wall Street Crash of 2008 is major evidence of basing financial growth on the success of stocks or bonds. 

Thousands upon thousands of workers at firms were laid off in the Wall Street Crash of 2008, a product of basing financial growth on stock market trends

It is only fair to state that the government should focus more on cultivating domestic products, and recording a growth in the number of materials exported to cover for growth in its cumulative economic stability.

Privatization and disinvestment of profit-making public enterprises are posing to be a hindrance to both the country’s economy and, inadvertently, the Indian currency, as a whole. 

Hopefully, the next time we record our cumulative economic growth, it won’t be on the basis of which private organizations accumulated how much wealth but rather, on the pretext of our foreign reserves and the Global Development Index. 

Image Sources: Google Images

Sources: NDTV, Pound Sterling Live, Livemint

Connect with the blogger: @kushan257

This post is tagged under: Reserve bank of india, stock market as an indicator of economic growth, indian rupee one of the strongest asian currencies, will there be an economic growth ,Indian Rupee, US dollar, rupee vs dollar, sensex records 50000 points, indian economy growth, value of indian rupee against us dollar, rupee hits record low

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