Indian Rupee – Gainer among Losers

The Indian rupee is up more than 2% in the current quarter. The Indian unit at 8 month highs, is one of the best performers in the EM currencies, 2nd only after Indonesian Rupiah, holding ground even as the Dollar Index is holding steady around 80 vs the basket of currencies.
While there has been FII outflow from other Emerging markets, India has been a favorable destination attracting that money. The pre elections rally in Indian equity markets and the consistent FII inflows have supported the currency.
Reports that China Government would unveil stimulus measures after string of weak economic data has supported the EM atmosphere.
Also due credit is to the improving Indian economy which has improved investor sentiment. The CAD and inflation numbers are investor friendly. The optimism stays firm, even as US has hinted at ending the monthly bond buying program before the end of this year. India has seen FII inflow of near $3bln in debt and equity in current month and upwards of $8.5bln in India in 2014.
It is also being called the Pre Elections rally where the hopes of a stable and business friendly government after elections are supporting the market.
The big banks in the meanwhile are looking at further gains in the currency. Barclays and BoAML are predicting 59 in near term and HDFC expects Rupee appreciation upto 57 if elections go as predicted.
The rally could see a dent if investors see signs of political instability emerge after elections. Many people on street also say that they wont be surprised to see profit taking before elections itself.
The RBI measure have worked well too but then most of the measure taken are all near term, the money has come in short end, the last 5 years in policy and growth have been a concern and since it also is the election year, the next government will have to come and deliver.
Many call it the calm before the storm as the macro concerns have all but subsided. The environment is still fragile not just in India but globally.
There are concerns on the monsoon front, the food security and other subsidies still continue. Much of stability has been the result of FII inflows which need to sustain.
So while there are lots of factors to watch out for, as of now the markets have everything positive working for them and a break of 60 on the Rupee is still a big one to break.