What Lies Ahead for the Indian Rupee in a Higher Oil Price Environment

The Indian rupee is facing pressure from weak capital inflows and higher oil prices, despite resilient domestic growth and declining oil intensity. ING expects USD/INR to stabilize at 95.50 by year-end as valuation adjustments conclude.

Key Takeaways

• 1.The Indian Rupee's recent slide is driven by weak capital inflows (FII and FDI) rather than a balance of payments crisis.
• 2.India's oil intensity has declined significantly from 8.8% in 2013 to 4.8%, cushioning the economy from global price shocks.
• 3.Net FDI has seen a sharp compression of nearly 80% over four years due to increased repatriation and outward FDI by Indian firms.

Table of Contents

• Oil shock resilience meets rupee strain
• How is India dealing with the oil shock, and what is the impact on prices?
• How is India dealing with the oil shock, and what is the impact on prices?
• What has been the impact on growth?
• The currency has taken the biggest hit. What changed?
• Weak capital inflows behind external weakness
• Have equity market valuations corrected enough?
• Persistent FII outflows
• Can FDI offset the drag from portfolio outflows?
• Can a USD deposit scheme support the Rupee?
• How does INR fare on valuation?
• Overall

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