INDIA: Rupee, Local Bonds Record Modest Gains Ahead of Index Inclusion Friday

USDINR has extended the pullback from Thursday’s record high to around 0.25% this morning, with the continued fade in the dollar from last week’s highs aiding the move lower. Meanwhile, rupee bonds have gained as investors ramp up buying ahead of the nation’s inclusion into JP Morgan’s emerging-market bond index on Friday.

• Though USDINR still trades near record highs overall, data last week showed the central bank’s currency reserves fell almost $3bn from a record in the latest reporting period, highlighting its presence in markets to limit undue volatility.
• India’s benchmark equity indices remain within close proximity to cycle highs, underlining positive sentiment towards Indian assets ahead of the aforementioned index inclusion. Indeed, Indian equities attracted inflows of $149m on Friday, contributing to a robust 5-day total inflow of $2,157bn. The 5-day average inflow of $431.4m is notably higher than the 20-day average of $87.3m.
• Current account data for Q1 provides the highlight on the local slate this week. Morgan Stanley expect the current account to swing to a surplus of 0.9% of GDP in 1Q24 from a deficit of 1.2% of GDP in 4Q23, led by a moderation in the goods trade deficit as exports grew at a faster pace relative to imports.