MUMBAI: The Indian rupee and stocks were regional laggards on Wednesday, with hedging and foreign portfolio flows weighing on the currency even as a retreat in oil prices eased investor nerves about the ongoing Iran war.
The Indian rupee was at 91.9150, down modestly from its closing level in the previous session.
Indian equities, too, were in the red with the benchmark Nifty 50 down 0.7% despite the MSCI’s gauge of Asian stocks rising nearly 2%.
Indian equities have remained divergent from regional peers amid worries over the impact of artificial intelligence on the country’s information technology sector, but those worries have been overshadowed by the ongoing Middle East war.
The U.S. and Israel traded air strikes with Iran’s military across the Middle East on Wednesday, but investors are wagering that the war may not last long, as indicated by the fall in oil prices and a rebound in global stocks.
Brent crude oil prices were last down 1% at $86.9 per barrel, well away from a peak of near $120 hit on Monday.
Traders and analysts, though, reckon that risks linger as the Strait of Hormuz, a key energy-supply route, remains blocked, and flare-ups in the conflict could renew risk aversion.
“We find that South Korea, Thailand, India, and Taiwan are particularly vulnerable to supply shocks emanating from the Middle East, as they source >40% of their energy imports from the region,” BNP Paribas said in a note.
“The longer the duration of the shock, the bigger the impact on FX, in our view, as the fallout may become more likely and significant,” the note said.
Later in the day, the focus will turn to the release of U.S. consumer price inflation data for cues on the future path of benchmark interest rates in the world’s largest economy.
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