Goldman Sachs highlighted that the Indian Rupee (INR) is a standout in the emerging markets currency complex (EM FX) due to its high carry-to-volatility ratio.
The company pointed out that the INR’s attractiveness is further enhanced when combined with short positions in the Euro (EUR) or the Chinese Yuan (CNH). Goldman expects the rupee to remain attractive as the Reserve Bank of India (RBI) continues its cautious interest rate policy and tight control over currency volatility.
According to Goldman Sachs, the trade-weighted INR closely tracks the trade-weighted US dollar, with the rupee’s global betas below historical averages. This positioning is considered by the company to be a key defensive component of any carry strategy for emerging market currencies. They continue to recommend short positions in .
In terms of valuations, Goldman Sachs believes the INR is modestly undervalued against the US dollar. This is attributed to the overvaluation of the dollar rather than a premium specific to India. The company does not expect any significant movement in the FX spot market after the conclusion of the 2024 Indian general elections.
This expectation is based on the prediction that the dollar will remain highly valued, and that the RBI’s currency management is likely to limit any potential currency reaction even if there is a post-election increase in foreign investment in India’s local equity and debt markets .
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