Tariffs and Visa Hikes Push Rupee to Record Low; Equities Stay Volatile

HIGHLIGHTS

• US economy weakening but not yet in 'disaster' mode: Jamie Dimon
• Auto shares in the fast lane on festive demand
• Adani Power shares fall up to 6% on profit booking after 45% rally
• RVNL shares gain nearly 2% on project win from Southern Railway
• Cochin Shipyard plans ₹150 billion shipyard in Tamil Nadu in a larger tie up with Korean shipbuilder

Indian equities ended lower on Tuesday but staged a sharp recovery from early losses, supported by strength in banking and metal stocks. Weakness in information technology and consumption counters, however, kept overall sentiment cautious.

Banking shares powered the late rebound, with the Nifty Bank advancing 225 points to 55,510. IndusInd Bank and Axis Bank gained 2–3%, while PSU lenders such as State Bank of India, Canara Bank and Union Bank also posted healthy gains. 

Metals added momentum, with the sectoral index rising nearly 1% as firm global commodity prices lifted investor confidence.

On the flip side, IT stocks remained under pressure for a second day, with Tech Mahindra, Coforge and Mphasis among the notable laggards. Consumer names also witnessed profit-taking, with Trent, Hindustan Unilever and Nestle India declining. Adani group shares were weak, led by a 7% plunge in Adani Total Gas.

In broader market action, Vodafone Idea rose 4% ahead of its AGR plea hearing at the Supreme Court, while oil marketing firms BPCL and HPCL tracked gains in crude. Emkay Global Financial Services surged 20% after investor Kirti Doshi bought a 21% stake. Gujarat Mineral Development Corp extended its stellar run, with shares more than doubling in 2025 and up 56% this month alone.

Among other movers, KEC International climbed over 2% after securing overseas transmission and distribution orders, while Hindustan Construction gained 3% on winning ₹25.66 billion contracts for the Patna Metro project.

Indian government bonds advanced on Tuesday, recovering from earlier weakness as solid demand at the weekly state debt auction signaled renewed investor appetite. The move came ahead of the government’s release of its borrowing calendar for the second half of the fiscal year.

The 10-year benchmark yield settled at 6.4729%, easing from Monday’s 6.4885%. During intraday trade, the yield briefly crossed 6.50%, which encouraged bullish traders to step in, preventing any sustained breach of the 6.52% technical level.

Strong subscription at the state loan auction provided a clear signal of confidence, helping reinforce sentiment in the sovereign debt market. Traders also showed interest in building positions ahead of the Reserve Bank of India’s policy announcement on October 1.

Market participants expect the central bank to retain its policy rate while striking a softer tone on growth and liquidity. The June 50-basis-point cut, followed by a shift to a neutral stance, and August’s pause continue to shape expectations. Traders broadly anticipate at least one more rate cut of 25 bps later this year, contingent on inflation trends and global developments.

The bond market remains supported by prospects of additional easing, with traders positioning for a dovish tilt from the RBI. The central bank’s commentary, coupled with clarity on the borrowing calendar, will be key in steering yields in the near term. For now, the recovery from intraday losses underscores steady demand for government securities as investors weigh both domestic policy cues and global interest rate signals.

Tenure	Today	Previous
10-year Gilt	6.47%	6.49%
5-year gilt	6.13%	6.13%
5-year OIS	5.72%	5.69%

The Indian rupee extended its slide to fresh record lows on Tuesday, pressured by a combination of steep US tariffs and higher H-1B visa fees that threaten India’s exports and IT sector revenues. The currency touched 88.7975 per dollar before closing at 88.7550, marking a 0.5% drop—the sharpest one-day fall in nearly a month. The rupee has now weakened over 3.5% in 2025, ranking among the region’s worst-performing currencies.

The latest bout of weakness was triggered by Washington’s sharp hike in H-1B visa fees, adding to the existing 50% tariffs on Indian goods—the steepest levy imposed on any Asian economy. Analysts warn that visa-related curbs could trim remittances, a key support for India’s external balances. HSBC estimates the 5.4 million Indians in the US remit around $33 billion annually, and stricter visa approvals could cut inflows by $500 million a year.

Traders said the Reserve Bank of India likely intervened through state-run banks to contain volatility, but its strategy remains focused on smoothing disorderly moves rather than defending a specific level. This approach has reinforced expectations that the rupee may see a gradual depreciation trend.

Investor sentiment mirrors this cautious outlook. In HSBC’s September emerging market survey, India was cited among currencies with weaker prospects, particularly after being targeted with US tariffs. Still, volatility remains subdued as corporates hedge more actively and offshore demand for downside bets has softened.

For now, the rupee’s trajectory will hinge on global dollar moves and domestic trade flows, with vulnerabilities unlikely to fade quickly.

Unit	Today	Previous
Dollar/Rupee	88.76	88.31
Dollar Index	97.30	97.43
1-year Dollar/rupee premium (%)	2.34%	2.34%

OUTLOOK
Equities will see mixed cues. Banking and metal stocks are expected to extend momentum, supported by stronger credit growth and firm global commodity prices. Public sector lenders will likely draw investor interest, while capital goods and defence-linked shares could gain on policy support and fresh order inflows. However, IT and consumption-focused counters will face persistent selling pressure, with higher U.S. visa fees weighing on technology exporters and cautious profit-taking expected in FMCG. Overall, benchmarks will remain volatile but resilient, with selective sector rotation offering support.

Government securities expected to hold within a narrow range ahead of the Reserve Bank of India’s policy review on October 1. Traders will anticipate steady rates with a dovish tilt, though higher inflation in August will limit scope for aggressive easing. Demand at state debt auctions will remain a key driver, while expectations around second-half borrowing plans will influence yield movement. The 10-year benchmark will likely face resistance near 6.52% but attract buyers on dips.

The rupee will remain under pressure after breaching record lows, as US tariffs and steeper H-1B visa fees threaten both exports and remittance inflows. The RBI will continue to intervene selectively, preventing sharp volatility but allowing gradual depreciation. Prospects of a US Fed rate cut next week could offer temporary relief, helping the rupee stabilize if the dollar weakens further. Still, the outlook will stay fragile, with trade and capital account pressures keeping depreciation risks intact.