India’s financial market is going through a topsy-turvy phase. Small-cap and mid-cap stocks have taken the hit, while benchmark indices have remained relatively stable. Small-cap stocks have fallen by 1.6% and mid-caps have fallen by 1.2% in the past week. India’s rupee value has fallen to 87.36 per dollar, making it one of the second worst performing currencies in Asia this year. RBI already holds a record $77.5 billion in net short position in forward dollars. This adds to the uncertainty and signifies forex intervention from the central bank. These fluctuations in market conditions shape lending conditions, investment sentiment and business scenarios.

Equity markets:

• Benchmark Indices: The BSE Sensex declined by 112 points (0.15%), while NIFTY 50 edged down by 5 points (0.02).
• Sector Performance: The auto and IT sectors have shown resilience. Automakers like TVS Motors, Apollo Tyres, Mahindra & Mahindra and Eicher Motors reported better than expected sales, boosting their stock prices. The auto index rose by 0.19% by 39.55 points as of 3^rd March 2025, the IT index also rose, supported by projections from companies like Salesforce.
• Small and Mid-Cap Stocks: These segments faced the brunt most, with small-cap and mid-cap indices falling by 1.6% and 1.2% respectively.

Currency and Forex Reserves:

The Indian rupee traded at Rs 87.36, consistently weakening against the dollar. The RBI has taken a net short dollar position in forwards and futures of a record $77.5 billion as of January 2025. This means that with the depreciating rupee value, the RBI has entered into an agreement to sell US dollars at a future date at a predetermined price. Thus, it can sell in future to stabilize the rupee value. Instead of selling dollars immediately, the RBI uses short contracts to avoid depleting foreign reserves. It will help the apex bank to manage liquidity in the Indian banking system, affecting interest rates and inflation.

SMEs face a turbulent time as a depreciating rupee will lead to an increase in importers’ costs, while exporters are likely to face reduced earnings. There will be a notable fluctuation in exchange rates, inflation, affecting business loans. However, the intervention of the Indian central bank is a strategic move to manage the rupee’s decline, which also hints at underlying economic stress.