INR: Rupee Edges Higher on Inflows to Indian Assets

USD/INR trades around 0.15% lower today, placing the pair within close proximity to the 50-DMA. Inflows into stocks and bonds are likely supporting the rupee as the much-anticipated inclusion of Indian bonds into the JP Morgan EM index nears.

• Indeed, the NIFTY and SENSEX both 0.3% higher and at fresh record highs today, reflecting positive sentiment towards Indian assets. Since the ruling BJP secured sufficient support from key allies to form a coalition government, the indices have extended to new highs with Bloomberg calculating recently that India’s stock market value has now exceeded $5trln for the first time.
• Whereas the new coalition may be less bold in some economic respects, Goldman Sachs think strong growth fundamentals should be sustained, and think the relative appeal for Indian equities remains intact. Consequently, they stay constructive on Indian equities, with an overweight allocation within the Asian region, and expect NIFTY to reach 26,000 by June next year.
• More broadly, Asia FX has been outperforming the rest of the emerging markets basket as the region remains insulated to election risk in Europe, triggered by the French snap election, and LatAm, where the sell-off in the Mexican peso following the presidential elections has hampered other regional currencies.