India’s rupee is the only Asian currency to do well, advancing 1.3%, amid this month’s rout in risk assets. This is attributed to the $2.4 billion of overseas purchases of local stocks, including inflows related to initial public offerings (IPOs).
According to Bloomberg, the prospect of an economic recovery, a rare current-account surplus and foreign-exchange reserves approaching $600 billion have put India in a strong position to ward off the impact of the US Treasury-led selloff that’s roiled global risk assets.
Madhavi Arora, lead economist at Emkay Global, said the rupee has had a decent year so far in the EMFX space, with March being an outlier. She said a large part of the currency’s gains are due to the huge line-up of IPOs, and possible robust foreign interest.
Sajal Gupta, head of foreign-exchange and rates trading at Edelweiss Securities Pvt, expects the rupee to come under pressure as it runs into a seasonally weak period in May and June. He predicts the currency will weaken to 74% dollar by end of June, from Thursday’s close of 72.5275.
The report stated that India has got about $8 billion of inflows into stocks this year. State-run companies raising dollar loans worth more than $1 billion in March, and the central bank tolerating gains, as opposed to its preference for a weaker currency unit until a few months ago, have also boosted the currency’s appeal.
In 2020, the Indian rupee was categorized as the “worst performer” among Asian currencies because it failed to capitalize on the weak US dollar and unprecedented foreign fund inflow. Reports highlighted that during the calendar year, the rupee had tanked by 3.28% against the US dollar, as the Reserve Bank of India kept reigns tight on the domestic currency.
Earlier this year, Fitch Solutions had revised its forecast for the Indian rupee to average stronger at Rs 75.50 to a US dollar in 2021, from Rs 77/USD. And for 2022, it had revised the forecast to Rs 77 to a US dollar, from Rs 79 previously.