Rupee Hits 2-Month High, RBI Signals October Repo Rate Hike: Weekly Outlook

The rupee gained more than 1% this week, closing near 94.38 per dollar and touching levels not seen in roughly two months, ranking among Asia's best-performing currencies over the period. Two forces converged: the record $136 billion mobilised through RBI's FCNR(B) and related swap measures continues to strengthen the central bank's ability to support the currency, and the dollar weakened broadly as markets raised bets on a Bank of Japan rate hike, lifting the yen and other Asian currencies alongside the rupee. Elevated crude oil prices remain the key headwind capping further gains, precisely the tension we flagged when this same FCNR story first seemed disconnected from rupee strength several weeks ago.

Banking system liquidity surplus climbed almost daily through the week, Rs 3.8 lakh crore on August 25, Rs 4.9 lakh crore by August 28, Rs 6.7 lakh crore by August 31, and a fresh record of Rs 10.3 lakh crore by September 3, already ahead of the roughly Rs 9.9 lakh crore September peak IDFC First Bank had forecast only last week. ICICI Securities now expects the surplus to cross Rs 15 lakh crore by the end of September. The weighted average call rate has slipped to around 4.95%, meaningfully below the 5.25% policy repo rate, a direct sign of just how much surplus cash is sitting in the system.

In response, RBI announced a 30-day variable rate reverse repo (VRRR) auction for a notified Rs 7 lakh crore, and the timing is the real story: its reversal date lines up exactly with the October 5-7 monetary policy review. Markets have read this as a signal that a rate hike, which would be the first of this tightening cycle, is a genuine possibility at that meeting. Interestingly, a separate 3-day VRRR auction RBI conducted the same week fell short of its own target, the central bank sought Rs 8.5 lakh crore cumulatively across two auctions but only mobilised Rs 6.02 lakh crore, suggesting banks aren't necessarily eager to lock away every rupee of this surplus with the central bank.

SEBI issued its final observation on NSE's roughly Rs 30,000 crore IPO in the week ending September 4, officially clearing the exchange's last regulatory hurdle after a listing saga stretching back to 2016. The offer is structured entirely as an offer for sale of 148.9 million equity shares, about 6% of paid-up equity, meaning every rupee raised goes to selling shareholders, State Bank of India, SBI Capital Markets, Canada Pension Plan Investment Board, Bank of Baroda, and others, rather than to NSE itself. Shares are expected to be priced above Rs 2,000 apiece, valuing the exchange at more than Rs 5 trillion.

This clearance lands officially back-to-back with SEBI's approval of Jio Platforms' roughly Rs 37,700 crore IPO the week before, setting up two of India's biggest-ever public offerings within the same month. Zoom out further and September looks like a genuinely landmark month for India's primary markets on the whole: alongside the two mega-listings, nearly 25 other IPOs are moving through the pipeline across mainboard and SME segments this month, spanning construction, specialty chemicals, transformer manufacturing, payments infrastructure, renewable energy and consumer platforms.

Dr Reddy's Labs fell around 9% to a 52-week low following its latest quarterly results, while Glenmark, Biocon and Aurobindo Pharma each slipped roughly 3% on concerns tied to a proposed US tariff plan targeting generic drug imports. Indian generics makers derive a large share of revenue from the US market, making any tariff proposal a genuine, direct risk to sector margins rather than a distant policy headline.

US nonfarm payrolls rose 162,000 in August, nearly triple the 56,000 economists expected, and July's figure was revised up by 44,000, turning a previously reported decline into a gain. The unemployment rate held at 4.1%. The data significantly strengthened the case for tighter Fed policy, and the probability of a September rate hike, per the CME FedWatch tool, jumped to around 60%, a sharp reversal from earlier in the week when dovish comments from Fed Governor Christopher Waller had pulled those odds down closer to 50%.

Gold, which had climbed on the earlier dovish tone, tumbled from around $4,500 to a session low near $4,419 on the jobs print, on pace for a second straight weekly loss. Bitcoin was hit harder, plunging roughly $2,000 in a five-minute window before dip buyers stepped back in.

Brent crude climbed to around $96 a barrel, posting a weekly gain of roughly 7% as renewed US-Iran hostilities raised fresh concerns over potential disruptions to energy infrastructure and shipments through the Strait of Hormuz. This is the same thread we've now tracked across five separate weeks, each spike arriving from a similar trigger, each pushing the price a little higher than the last.

Nifty 50 closed the week at 23,897.70, down 1.1%, its fourth consecutive weekly decline. Sensex fell 1% for the week to 76,515.43. Auto (-4%), Consumer Durables (-2.6%), Media (-2.3%), Healthcare (-2.3%) and FMCG (-2%) led sectoral losses, while Oil & Gas, Private Banks and Energy posted modest gains. Cable and wire stocks, Polycab, KEI Industries, RR Kabel and Havells, were also among the week's laggards after UltraTech Cement formally launched its Ultravolt wires and cables business, its fourth new business foray in three years, raising competitive concerns for established players.

Friday itself looked nothing like the week that preceded it. Both indices snapped a four-day losing streak, Sensex rose 362 points (0.48%) and Nifty gained 24 points (0.10%), as global equities advanced and rate-hike fears briefly eased earlier in the session, before the US jobs report later in the day complicated that picture again. India's VIX fell nearly 6% to around 10.7, and metal shares led Friday's gains, with Tata Steel up 2.9%.

On flows, FIIs sold a net Rs 3,111.90 crore in the cash segment on September 4, while DIIs bought a net Rs 8,930.10 crore the same day, comfortably absorbing the outflow. FII net-short index futures positioning grew further to around 2.36 lakh contracts, up from roughly 2.03 lakh contracts two weeks ago, with options activity showing both heavy put buying and heavy put shorting simultaneously, a genuinely mixed signal for a second week running.

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