Mumbai, Jul 24 (PTI) The rupee depreciated 2 paise to hit its all-time closing low of 83.71 against the US dollar on Wednesday, weighed down by a strong dollar against major crosses overseas amid investors’ weak appetite for riskier assets.
Forex traders said the increase in capital gains tax and removal of indexation benefits announced in the FY25 Budget on Tuesday was the main reason for dollar buying as foreign investors sold stocks.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Wednesday as they offloaded shares worth Rs 5,130.90 crore, according to exchange data.
At the interbank foreign exchange market, the local unit opened at 83.69 and touched an intra-day high of 83.68 and a low of 83.72 against the dollar during the session.
It finally settled at an all-time low level of 83.71 against the American currency, registering a fall of 2 paise from its previous close.
On Tuesday, the rupee declined 3 paise to 83.69 against the US dollar after the government raised tax rates on capital gains in the FY25 Budget.
“The rupee made a new closing low as buying of dollars continued to attract interest keeping the rupee under pressure. The government also seems to be interested in keeping the rupee weak as it attracts inflows which are then absorbed by the Central Bank thus increasing the reserves,” Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said.
Forex traders said US dollar buying continued to be the theme after the increase in long-term capital gains tax (LTCG) and short-term capital gains tax (STCG) and then the removal of indexation benefits.
The government on Tuesday proposed reducing the long-term capital gains tax on immovable properties to 12.5 per cent from 20 per cent but removed the indexation benefits to adjust for inflation, a move experts termed as “negative” for sellers.
“The Union Budget provided support to the agriculture sector and railways, with a decent allocation to defence already made in February. This focus on domestic spending has helped avert a significant fall in the rupee.
“However, the cut in import duty on gold could negatively impact the government’s revenue, as India is a net importer of gold,” Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities, said.
As per the memorandum to the Union Budget, with rationalisation of rate to 12.5 per cent, indexation available under section 48 of the Income Tax Act is proposed to be removed for calculation of any long-term capital gains, which is presently available for property, gold and other unlisted assets.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.05 per cent at 104.50.
Brent crude futures, the global oil benchmark, were trading higher by 0.79 per cent at USD 81.65 per barrel.
In the domestic equity market, the 30-share BSE Sensex fell 280.16 points or 0.35 per cent to settle at 80,148.88 points, and Nifty dropped 65.55 points or 0.27 per cent to 24,413.50 points. PTI DRR DRR BAL BAL
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