Rupee on strong footing, set to stay on top among EM currencies
India is on top of the global league on returns, and is forecast to remain so in the New Year with strengthening economic fundamentals.
By Saikat Das, ET Bureau |
MUMBAI: International equity investors may have had a bad year in India; but from the perspective of returns from the Indian currency and interest rates, India is on top of the global league on returns, and is forecast to remain so in the New Year with strengthening economic fundamentals.
An international investor would have earned 2.6% from India in 2015, adjusted for spot currency movement and the yield on government bonds, higher than the 0.2% that they received from China, or a near 20% loss from South Africa or Brazil, data from Bloomberg shows.
“We expect that the rupee should continue to outperform other EMs, said Brijen Puri, managing director, head of markets at JP Morgan (India). “It would give a marginally positive absolute total return next year as well, given its superior macroeconomic fundamentals and policy credibility.”
While the year 2015 saw severe currency volatility across the globe, especially the emerging markets, the Indian rupee was among the best performing currency depreciating just 5% versus the US dollar when the Indonesian Rupiah tumbled 9.6% and the Brazilian real collapsed 31%. The US Federal Reserve’s rate increase led to a flight of capital back to the US leading to the Greenback’s gain versus most other currencies.
In a year when the emerging market story was a sorry one due to the commodities rout and the pull out of funds by global investors, India remained an oasis of stability as the economy was getting ‘bulletproofed’.
Irrespective of the Fed decisions next year, the rupee is poised to outperform in the new year as well as China may be going on the path of devaluation. During the year, foreign portfolio investors have net invested Rs 64,770 crore in Indian assets of which `47,009 crore were in debt securities. Equity investors lost about 4.8% in 2015.
“Rupee’s biggest threat is the continued risk of stalling FPI equity inflows to EMs,” said Indranil Sen Gupta, India economist at Bank of America Merrill Lynch.
An international investor would have earned 2.6% from India in 2015, adjusted for spot currency movement and the yield on government bonds, higher than the 0.2% that they received from China, or a near 20% loss from South Africa or Brazil, data from Bloomberg shows.
“We expect that the rupee should continue to outperform other EMs, said Brijen Puri, managing director, head of markets at JP Morgan (India). “It would give a marginally positive absolute total return next year as well, given its superior macroeconomic fundamentals and policy credibility.”
While the year 2015 saw severe currency volatility across the globe, especially the emerging markets, the Indian rupee was among the best performing currency depreciating just 5% versus the US dollar when the Indonesian Rupiah tumbled 9.6% and the Brazilian real collapsed 31%. The US Federal Reserve’s rate increase led to a flight of capital back to the US leading to the Greenback’s gain versus most other currencies.
In a year when the emerging market story was a sorry one due to the commodities rout and the pull out of funds by global investors, India remained an oasis of stability as the economy was getting ‘bulletproofed’.
Irrespective of the Fed decisions next year, the rupee is poised to outperform in the new year as well as China may be going on the path of devaluation. During the year, foreign portfolio investors have net invested Rs 64,770 crore in Indian assets of which `47,009 crore were in debt securities. Equity investors lost about 4.8% in 2015.
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“Rupee’s biggest threat is the continued risk of stalling FPI equity inflows to EMs,” said Indranil Sen Gupta, India economist at Bank of America Merrill Lynch.
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