Rupee volatility in focus as Sitharaman signals more RBI action, weighs LTCG tax debate

Finance Minister Nirmala Sitharaman on Tuesday said that the Reserve Bank of India may take further measures to curb rupee "volatility" and added that she was open to hearing views from stakeholders regaring long-term capital gains (LTCG), with the latter leading to a rally in the stock market.

"I am sure there are measures the central bank would take further to make sure that the rupee does not become too volatile," she said at the Bloomberg New Economy Forum in New Delhi.

Sitharaman added discussions were ongoing around long-term capital gains (LTCG) tax and securities transaction tax (STT), with Indian and global investors weighing in on the treatment of different asset classes. She further said the debate over whether different asset classes should be taxed similarly had been widely discussed.


India's equity benchmarks, namely the Sensex and Nifty 50 underwent a sharp rebound after her comment. A rally in IT stocks further boosted investor sentiment.

The Sensex jumped over 1,000 points to trade above 72,900, while the Nifty climbed over 300 points to trade above 22,700 around 02:58 PM. The sharp gains added more than Rs 3 lakh crore to the total market capitalisation of all companies, pushing it up to Rs 469 lakh crore.

Her comments come as foreign investors continue to pull money out of Indian equities amid multiple headwinds. In its Ecowrap report on Monday, SBI Research suggested that the government consider abolishing LTCG tax on equities to encourage investors to remain invested for longer.

The rupee has hit a low, and the RBI is making significant efforts through regulatory measures to keep it stable, she said, adding that the top bank is "not trying to fix the rupee but to curb volatility."

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She said the rupee’s depreciation over the past year has been significant, with most of the decline driven by global challenges.

"India keeps macroeconomic fundamentals strong and investors need not worry about fiscal discipline," she assured.

Rupee rebound

The rupee's biggest single-day advance in six months came on Monday after the RBI unveiled a series of measures to curb dollar demand. The central bank reinforced that with direct market intervention, selling dollars to support the currency, according to traders.

The RBI has since taken further steps, widening the scope of a recently introduced cash deposit requirement for foreign-exchange hedges to cover all such transactions, including those used to hedge banks' own assets and liabilities.

The central bank has further tightened rules for banks offering non-deliverable foreign-exchange derivatives to clients.

Lenders with units in India’s International Financial Services Centre and certain primary dealers, which were allowed to offer non-deliverable rupee derivatives to non-residents for any purpose, can now offer them only for hedging, the RBI said.