FII selling puts pressure on rupee as domestic flows support equities: Report

Persistent foreign institutional investor (FII) selling pressured the Indian rupee in November, while domestic capital flows buoyed equity markets and bond yields climbed, according to a Friday market analysis.

JM Financial’s report highlighted the rupee’s 6% depreciation in 2025 – nearly double the historical average annual decline of 3.5% – attributing this weakness to FII withdrawals and ongoing trade negotiations with the US.

The analysis underscored strong performance in banking, financial services, and insurance sectors alongside automotive industry growth.

“Banking indicators showed stable credit expansion, accelerating deposit growth, and increasing insurance premiums, with consistent asset management activity,” the report stated.

Beyond financial services, automotive wholesales demonstrated broad year-over-year gains, infrastructure project awards slowed, metal prices and steel volumes declined sequentially, and port cargo growth decelerated compared to October.

India’s external position strengthened as merchandise trade deficit narrowed to $24.5 billion in November following October’s $42 billion gap. The services surplus continued offsetting goods trade imbalances.

Bond markets appeared to anticipate the conclusion of rate reductions as yields rose despite RBI open market interventions and December’s 25 basis-point policy rate cut.

Bank credit maintained steady 11.5% year-over-year growth while deposits expanded by 10.2%. Private banks’ MCLR decreased to 9.4% versus stagnant PSU bank rates of 8.8%.

Automotive wholesales surged 22.2% annually with commercial vehicle sales jumping 26.6% in November. Foreign portfolio investors remained net sellers during most December trading sessions.

Bank of Baroda analysts project ongoing rupee volatility until potential US trade agreement finalization by March 2026.

(With inputs from IANS)