InvestorQ : Why did the Nifty and Sensex rally so sharply on Wednesday despite the rupee being so weak?
Dawn Cherian made post

Why did the Nifty and Sensex rally so sharply on Wednesday despite the rupee being so weak?

Answer
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Dilmini Mercia answered.
1 year ago


Normally, the rupee weakness also goes with the stock market weakness but to understand why this happened, we need to separately look at why the stock markets went up and why the rupee weakened.

Why did the stock market rally on Wednesday?

The 500 point rally in the Sensex on Wednesday virtually compensated for the fall in the Sensex in the 3 days prior to that. The rally was largely driven by two factors. Firstly, most of the major results announced of heavyweights in this quarter like TCS, Reliance Industries and HDFC Bank have been extremely impressive. Secondly, the government announced that it will infuse Rs.25,000 crore in the form of bond buying in the month of May. This should keep the markets liquid in an election month and that also was seen positively by the market. These two factors impacted the rally.

Why did the rupee weaken on Wednesday?

The rupee weakness on Wednesday was driven by two very specific factors. Firstly, the price of Brent Crude closed at a 6-month high of $74.57/bbl. This is likely to put pressure on the current account deficit and that weakened the rupee to Rs.69.87/$. At the same time, the dollar swap auction on Tuesday also put pressure on the rupee. The RBI bought dollars from banks promising to sell back in 3 years at a higher price of above Rs.78. This pushed up the forward premiums and weakened the rupee.

Since the Sensex and the rupee were impacted to two diverse set of factors, the markets did not really get impacted by the weakness in the rupee.