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Anticipating PM Modi’s return, Indian Rupee rises from Asia’s worst to best performing currency

With the election season around the corner, the environment all over the nation is heating up. The political parties have tightened their belts for campaigning and political pundits, analysts and surveys are in full swing analyzing and predicting as who will win, whether Prime Minister Modi and his Government will be able to make a comeback or Congress and Mahagathbandhan will be able to downturn Modi Government.

Nevertheless to say but all these analysis and surveys are indicating to a same result i.e. victory of Prime Minister Modi and NDA Government coming back with a bang.

And the market and all other economic indicators too shows positive results on the prediction of such results. The Indian Currency Rupee has shown a major upswing in last five weeks, from Asia’s worst performing currency Rupee has become Asia’s best performing currency in the five weeks

The turnaround has been fueled by the improved chances of Prime Minister Narendra Modi winning a second term amid recent tensions between India and Pakistan. The optimism has led to local shares and debt luring robust flows, which have turned the carry-trade returns on the rupee to the highest in the world in the past month.Carry-trade in currency is a strategy whereby a trader uses a high-yielding currency to fund trade with a low-yielding currency. The rupee is going to strengthen further if PM Modi wins a second term

“The high-yielding rupee will likely advance further if Modi wins a second term,” said Gao Qi, a currency strategist at Scotiabank in Singapore.  In fact, he expects Rupee to rally further to 67 per US Dollar by June-end this year. Borrowing dollars in order to purchase rupee assets has gone up by 3.8 per cent over the last one month. A dovish tilt by major central banks in the face of a faltering global expansion could also prompt foreigners to chase higher yields in emerging Asia, he said.

Anindya Banerjee, an analyst at Kotak Securities Ltd. in Mumbai said, “The market is pricing in a Modi victory as there are no other factors that explain the sudden change of mood, On top of that, carry traders are eager to be long rupee and short other low-yielding currencies, including the dollar. It is a get-set-go for the rupee.”  she said

The rupee optimism is also reflected in the derivatives market, where one-month options conferring the right to sell the rupee now cost 19 basis points more than those to buy. That’s down from 148 on Sept. 5, which was the highest since November 2016.“Global conditions — dovish Fed and ECB — have turned more supportive and domestically, increased confidence in the BJP’s prospects and a recovery in portfolio flows have been the key driver” for the rupee, said Dushyant Padmanabhan, a currency strategist at Nomura Holdings Inc. in Singapore.

The Plc strategist from Barclays Ashish Agrawal  also indicated the same that if BJP led coalition will come to power the rupee will further be strengthened


Niharika

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