On Friday, the Indian rupee, however, gave up its early gains and settled down 18 paise against the US dollar to close at 85.45, compared with its previous close of 85.27. Geopolitical tensions hit the market, bringing the risk-off mood and dragging the domestic currency lower at 85.21, off 8 paise from its opening of 85.19.
Tensions between India and Pakistan were running even higher when tensions rose following a ceasefire violation between the two countries across the Line of Control (LoC), and thereby the rupee fell. Pakistan had just suspended the historic Simla Agreement of 1971, after which the escalation came just hours later. Pakistani troops fire into multiple locations along the LoC, allegedly following the Pahalgam terror attack. In the meantime, the Indian Army responded ‘effectively’ to the breach of the ceasefire.
General heightened tensions also affected broader financial markets. According to the 3:30 p.m. IST wrapping up of trade, the benchmark Sensex index lost 570.8 points or 0.71 percent to finish at 79,227, while the Nifty lost 207.3 points or 0.86 percent to settle at 24,039.
The US dollar continued to stay strong abroad, the US dollar rose 0.32% Friday night against a basket of currencies, according to the dollar index at 99.69. Continuing to pressure the rupee further, the stronger dollar also caused its slide.
The geopolitical stress did not seem to deter foreign portfolio investors (FPIs) from their buying streak in the Indian equities. Between Wednesday and Thursday, FPIs bought stocks worth ₹8,250.53 crore and have so far purchased a total of ₹29,450.5 crore in the past seven trading sessions.
While investor confidence in India’s fundamentals holds up, sustained tensions with Pakistan could result in some further market volatility in the currency and equity markets in the short term, analysts said.
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