India has raised fuel prices and adjusted trade and tax settings to reduce macro volatility and support the Indian Rupee (INR). The government increased import duties on gold and silver and tightened some administrative rules to curb purchases and reduce extra demand for US dollars.
Petrol and diesel prices rose by about INR 3 per litre. Petrol increased by INR 3.14 per litre to INR 97.77 per litre across several cities, while diesel rose by INR 3.11 per litre to as high as INR 90.67 per litre.
Press reports say a cut in withholding tax (WHT) on foreigners’ bond holdings is being considered. The debt category recorded FPI outflows of $613mn in FY27 year to date, after $2.8bn inflows in FY26, across the general limit, VRR and FAR windows.
In the near term, the INR is expected to react to news flow and equity flow changes. The currency may remain weak until equity outflows reverse.
With Indian authorities actively trying to manage macro volatility, we should anticipate an increase in short-term price swings for the Indian Rupee. These government interventions, such as raising import duties and fuel prices, create uncertainty in the market. This environment points towards higher implied volatility in USD/INR currency pairs.
The key driver for the rupee remains foreign equity flows, which have been negative recently. Data released by the National Securities Depository Limited (NSDL) earlier this week showed foreign portfolio investors (FPIs) were net sellers of Indian equities by over $2.1 billion in April 2026. This sustained selling pressure is a major headwind for the rupee, keeping it near the 84.70 mark against the dollar.
Given this dynamic, traders should consider strategies that benefit from this expected volatility. Buying one-month USD/INR call options provides upside exposure if government measures fall short and equity outflows accelerate. This allows traders to capitalize on potential rupee depreciation while capping downside risk to the premium paid.
We saw a similar pattern in late 2025 when a sudden reversal in FPI sentiment led to a sharp 2% drop in the rupee over a three-week period. Back then, traders who had positioned for volatility, rather than a specific direction, were the most successful. This historical precedent suggests that being long volatility is a sound strategy right now.
The possibility of a cut in the withholding tax for foreign bond investors is a significant, but uncertain, factor. This would be a positive catalyst for the INR, potentially reversing the $613 million in FPI debt outflows seen since the financial year began on April 1st. Traders should be prepared for a rapid, albeit potentially temporary, strengthening of the rupee if this news breaks.
Therefore, a long straddle, which involves buying both a call and a put option at the same strike price, could be an effective strategy for the coming weeks. This position profits from a significant price move in either direction, aligning well with the current headline-driven market. It effectively makes a bet on increased market movement itself.
