Rupee trades in narrow range against US dollar in early trade

New Delhi: The Indian rupee was moving within a small range, dropping 1 paisa to 83.70 against the US dollar in the early trading session on Wednesday due to a lack of risk appetite and increased demand for dollars from importers.

Forex traders pointed out that the primary cause of dollar buying by foreign investors selling stocks was the rise in capital gains tax and elimination of indexation benefits in the FY25 Budget announced on Tuesday. In the interbank foreign exchange market, the domestic currency started at 83.69, reached a low of 83.70, showing a decrease of 1 paisa compared to its last closing rate.

The rupee decreased by 3 paise to 83.69 against the US dollar on Tuesday following the government's increase in tax rates on capital gains in the FY25 Budget. The Indian rupee keeps hitting record lows every day due to ongoing demand for the US dollar. Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, stated that the rise in capital gains tax and removal of indexation benefit on Tuesday led to FPIs selling stocks, which in turn drove up the demand for the US dollar. On Tuesday, the government suggested lowering the long-term capital gains tax on real estate to 12.5 per cent from 20 per cent, while eliminating indexation benefits to account for inflation, a change criticized by experts as unfavorable for sellers.

According to the note in the Union Budget, the proposal is to eliminate indexation benefits under section 48 of the Income Tax Act for calculating long-term capital gains on property, gold, and unlisted assets by reducing the rate to 12.5 percent.
At the same time, the dollar index, which measures the value of the US dollar compared to six other currencies, stood at 104.48, increasing by 0.03 percent. The global oil benchmark, Brent crude futures, increased by 0.38 pc to reach USD 82.32 per barrel.

Bhansali said it appears that following the elections, the Reserve Bank has decided to let the rupee weaken slightly in order to maintain competitiveness for exports. The 30-share BSE Sensex was trading at a lower value of 80,215.14 points, down 213.90 points or 0.27 pc in the domestic equity market. The wider NSE Nifty fell by 54.80 points, representing a 0.22 pc decrease, reaching 24,424.25 points.

According to exchange data, on Tuesday Foreign Institutional Investors (FIIs) sold shares worth Rs 2,975.31 crore in the capital markets.