India’s inclusion in a key global bond index is expected to strengthen the rupee against its peers, despite the possibility that higher US interest rates will impact the appeal of emerging market assets. The Reserve Bank of India is likely to absorb some of the dollar inflows to support export competitiveness. The stable flow of foreign funds is seen as a buffer against the years-long rise in US bond yields and rising crude oil prices.
While no significant dollar inflows due to inclusion in the index are expected over the next six months, the outlook for the rupee remains constructive, especially in contrast to the depreciating Chinese yuan and the Malaysian ringgit against the US dollar.
JP Morgan recently announced that India will be added to its global index suite of the Government Bond Index Emerging Markets in June 2024, potentially delivering more than $20 billion in stable flows to the Indian government bond market in two years. Traders are hopeful that the Bloomberg Global Aggregate Index will follow suit with a similar announcement in the coming months.
According to Anubhuti Sahay, head of South Asia Economic Research at Standard Chartered Bank, India’s inclusion in major global indices is positive in the medium term, both in terms of flows and potential additional inflows if India is included among other index providers. concerned.
The rupee is down 0.5% against the US dollar in 2023. Dilip Parmar, research analyst at HDFC Securities, expects the rupee to move between 81.50 and 84/$1 in the coming quarters, leaving room for appreciation despite global challenges. However, analysts also acknowledge that the Reserve Bank of India is likely to accumulate USD reserves in an uncertain global environment.
“We expect the RBI for the USD to accumulate, the USD/INR would have to fall further on expectations of bond inflows. After selling $84.4 billion (spot and forward) in 2022 to defend the rupee, we estimate that India raised $35.4 billion (spot and forward) between January and July 2023,” Nomura said in a report. “However, we estimate that it has sold $6.2 billion locally since August, countering INR depreciation pressures and against the backdrop of a revival in foreign equity outflows.”
Despite Brent crude futures rising above $90 a barrel and 10-year US bond yields hitting a 16-year high, the rupee has outperformed nine Asian currencies in 2023, according to Bloomberg data.
From a fundamental perspective, analysts expect a protective cushion for India in the coming year. HSBC economists Pranjul Bhandari and Aayushi Chaudhary say FY25 is likely to experience the biggest balance of payments blow, with inflows spread between $20 and $22 between June 2024 and March 2025.
While no significant dollar inflows due to inclusion in the index are expected over the next six months, the outlook for the rupee remains constructive, especially in contrast to the depreciating Chinese yuan and the Malaysian ringgit against the US dollar.
JP Morgan recently announced that India will be added to its global index suite of the Government Bond Index Emerging Markets in June 2024, potentially delivering more than $20 billion in stable flows to the Indian government bond market in two years. Traders are hopeful that the Bloomberg Global Aggregate Index will follow suit with a similar announcement in the coming months.
According to Anubhuti Sahay, head of South Asia Economic Research at Standard Chartered Bank, India’s inclusion in major global indices is positive in the medium term, both in terms of flows and potential additional inflows if India is included among other index providers. concerned.
The rupee is down 0.5% against the US dollar in 2023. Dilip Parmar, research analyst at HDFC Securities, expects the rupee to move between 81.50 and 84/$1 in the coming quarters, leaving room for appreciation despite global challenges. However, analysts also acknowledge that the Reserve Bank of India is likely to accumulate USD reserves in an uncertain global environment.
“We expect the RBI for the USD to accumulate, the USD/INR would have to fall further on expectations of bond inflows. After selling $84.4 billion (spot and forward) in 2022 to defend the rupee, we estimate that India raised $35.4 billion (spot and forward) between January and July 2023,” Nomura said in a report. “However, we estimate that it has sold $6.2 billion locally since August, countering INR depreciation pressures and against the backdrop of a revival in foreign equity outflows.”
Despite Brent crude futures rising above $90 a barrel and 10-year US bond yields hitting a 16-year high, the rupee has outperformed nine Asian currencies in 2023, according to Bloomberg data.
From a fundamental perspective, analysts expect a protective cushion for India in the coming year. HSBC economists Pranjul Bhandari and Aayushi Chaudhary say FY25 is likely to experience the biggest balance of payments blow, with inflows spread between $20 and $22 between June 2024 and March 2025.
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