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Rupee is likely to experience slight depreciation in 2025, driven by volatile foreign portfolio investor (FPI) flows and a potentially stronger US dollar, as per a Bank of Baroda report.
Despite a 2.8 per cent depreciation in 2024, INR outperformed several global currencies, aided by the Reserve Bank of India’s (RBI) active forex market interventions to manage fluctuations.
India’s foreign exchange reserves stood at $644.3 billion as of 20th December 2024, reflecting a favourable current account balance and lower crude oil prices, which have provided crucial support to the rupee.
Equity markets poised for a strong start in 2025
Equity markets, though experiencing a minor correction in recent days, are expected to rebound in early 2025. Analysts attribute this optimism to anticipated growth in rural spending and increased government expenditure, which are projected to fuel corporate earnings.
In 2024, the Sensex and Nifty 50 delivered strong performances, rising by 8.7 per cent and 9 per cent respectively. The Sensex crossed the historic 85,500 mark, reflecting strong investor confidence. Sectors such as real estate, consumer durables, and IT emerged as top performers, driving significant returns for investors.
Global equity markets also concluded 2024 on a positive note. The S&P 500 and Dow Jones in the US reported double-digit gains, signalling a broad rally. However, market participants remain cautious as they await the policy agenda of President-elect Donald Trump, which could introduce fresh uncertainties.
The government remains committed to fiscal prudence, targeting a fiscal deficit of 4.9 per cent of GDP and a gross borrowing target of Rs 14 trillion for FY25.
The RBI, which has kept rates steady at 6.5 per cent since February 2023, is expected to consider a rate cut in its February 2025 policy meeting to support economic growth.
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