Strong foreign-currency inflows through FCNR(B) deposits and relatively stable market valuations are providing some support to Indian financial markets even as crude oil prices move above the $90-a-barrel mark, according to market experts. The latest assessment comes amid heightened attention to liquidity, the rupee and India’s external position.
The RBI’s special FCNR(B) mobilisation drive has generated substantial inflows. By August 13, banks had mobilised around $52.3 billion through FCNR(B) deposits, while total inflows through the broader foreign-currency borrowing measures had reached about $56.8 billion.
The strong inflows have strengthened India’s external liquidity position and provided banks with an additional source of foreign-currency funding. The development is particularly relevant at a time when the rupee is facing pressure from elevated crude prices and broader geopolitical uncertainty.
However, the rise in crude oil prices remains a key concern for the Indian economy. Higher oil prices can increase the country’s import bill and put pressure on inflation and the current-account position, while a sustained rise in energy costs can also affect corporate margins and consumer spending.
Market valuations are providing some cushion. Experts have pointed to relatively stable valuations and continued domestic liquidity as factors that could help Indian equities absorb external volatility.
The FCNR(B) inflows also provide the Reserve Bank of India with greater foreign-currency resources. The central bank had introduced the special facility to encourage banks to mobilise foreign-currency deposits from non-resident Indians and strengthen India’s external position.
At the same time, investors are closely monitoring the interaction between foreign-currency inflows, domestic liquidity, bond yields and the rupee. Large dollar inflows can strengthen the external balance but can also increase rupee liquidity, requiring the RBI to manage the resulting liquidity conditions.
Crude oil remains the immediate external risk. If prices remain elevated for an extended period, the impact could spread across inflation, currency markets, corporate earnings and India’s trade balance.
For equities, experts therefore see a mixed environment: strong external inflows and reasonable valuations provide support, while expensive crude, geopolitical uncertainty and currency pressure could keep volatility elevated.
The overall market outlook is consequently likely to remain sensitive to the trajectory of crude prices, foreign-currency flows, interest rates and global risk sentiment.
