Rupee Strengthens 0.76% as Oil Prices Drop 2% and Geopolitical Tensions Ease

The Indian rupee (INR) appreciated by 65 paise on 24 June, trading at 86.13 per US dollar (USD). This recovery was driven by two key factors: a sudden decline in international crude oil prices and a ceasefire between Israel and Iran, which had been in conflict for 12 days. The ceasefire, brokered by US President Donald Trump, helped to calm investor concerns, boosting sentiment in Indian financial markets.

The strengthening of the rupee provided relief from inflationary pressures caused by high oil import costs. A higher rupee value eases the import bill and mitigates the impact of high oil prices on local inflation, as India relies heavily on crude oil imports. The Indian economy benefited from the decline in crude oil prices, which fell by more than 2%, with the best prices at 69.88 dollars per barrel.

Indian equity indices also performed well on the same day, with the Nifty 50 and BSE Sensex gaining nearly 1%. These indices reached their strongest levels since early October. At 10.24 AM IST, the Nifty 50 was at 25,225.85 points, and the BSE Sensex was at 82,743.91 points. This bullish market sentiment was primarily due to reduced geopolitical tensions following the ceasefire and the fall in oil prices, which is beneficial for India as a large oil consumer.

Oil marketing firms such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and InterGlobe Aviation saw increases of 2.9%, 3.1%, and 3.7%, respectively. Conversely, upstream oil shares like ONGC and Oil India declined as the drop in oil prices negatively impacted the profitability of oil drillers. Other market segments, including mid-cap and small-cap stocks, also rose, with the overall market increase around 0.8%.

The ceasefire between Israel and Iran, mediated by US President Donald Trump, had significant geopolitical implications. It prevented further escalation in the Middle East conflict with Tehran, which had driven oil prices to five-month highs due to concerns about market disruption. The resolution of the crisis was welcomed by markets, as traders adjusted their expectations for oil prices.

The fall in oil prices is beneficial for India, which is heavily dependent on oil imports. Lower oil prices reduce inflationary pressures, giving the Indian government more time to control its fiscal deficit. With oil prices falling by more than 2% to 69.88 dollars per barrel, the Indian rupee gained further strength. The country's trade balance and foreign exchange reserves also improved.

While the market is optimistic due to the ceasefire and declining oil prices, the sustainability of this success depends on various factors. These include global oil prices, geopolitical tensions, and changing trade policies of major economies. The US, in particular, is likely to play a significant role in India's economic prospects. According to the Chief Investment Strategist at Geojit Investments, other issues may arise if global trade policies create more uncertainty or inflation in the market.