Foreign inflows underpin Indian equities as Indian Rupee trades near multi-month highs

• Foreign equity purchases exceeding $4.1 billion this November have helped keep the Indian Rupee close to seven-month highs.
• An increase of 165,000 in October Nonfarm Payrolls comfortably surpassed forecasts, curbing the Greenback’s scope for losses.
• The probability of a 25-basis-point Fed rate rise stands above 78%, according to CME FedWatch.

Foreign investors have bought more than $4.1 billion of Indian equities so far in November, the strongest monthly net purchases since September 2024. These substantial capital inflows are providing firm support for the Indian Rupee (INR), leaving USD/INR close to seven-month lows. Trading near 93.80 in Monday’s early European session, the pair is extending its decline into an eighth consecutive day.

A wider sell-off in global AI-related technology shares is also prompting investors to shift funds back towards regional Asian assets. With market participants reassessing stretched technology valuations, India’s relatively undervalued equity market is attracting attention, making the country a notable beneficiary of this rotation.

Falling crude oil prices are easing inflationary pressures and weighing on the US Dollar (USD), adding to the difficulties facing USD/INR. Energy prices retreated after US President Donald Trump described further military action against Iran as "highly unlikely," provided progress on Iran’s nuclear programme continues and the Strait of Hormuz stays open. Trump also recognised that the unpopular Middle East conflict, which had earlier pushed up energy costs, was a significant factor in the Republicans’ recent midterm election defeats.

Stronger US labour market figures, however, have reinforced expectations of monetary tightening and could restrict further losses in the Greenback. The CME FedWatch tool now puts the likelihood of a 25-basis-point interest rate increase at December’s Federal Open Market Committee (FOMC) meeting above 78%, following a sharp rise.

Solid US employment figures are providing substantial support for the hawkish shift in Fed expectations. Against a consensus forecast of 65,000, October Nonfarm Payrolls (NFP) increased by 165,000, following September’s revised reading of 60,000. The Unemployment Rate, meanwhile, fell to 4.1%, below the 4.2% forecast.

Attention among traders and other market participants is now shifting to the Consumer Price Index (CPI) report on Tuesday and the Producer Price Index (PPI) release on Friday, as they seek clear signals on the Federal Reserve’s next policy steps.