Given India’s strong macro fundamentals and growth prospects, it remains an attractive bet for investors. According to a new report, this, along with stable domestic macros and external position, will likely provide further support to the rupee.
The rupee appreciated further by 1.1 percent in April, after appreciating by 2.4 percent in March. According to the Bank of Baroda (BoB) report, a sharp decline in the dollar due to a weakening economic outlook and lower global oil prices supported the gain in the rupee.
“Equity inflows turned positive in April after a gap of 3 months, signalling an improvement in investor sentiment. A softer US stance on tariffs has supported an improvement in investor sentiment. US officials have indicated that significant progress has been made on trade negotiations with its trading partners, likely to lift investor sentiments,” said Aditi Gupta, Economist, Bank of Baroda.
Hence, emerging market (EM) assets could see a gradual recovery in foreign inflows.
“We expect the rupee to trade with an appreciating bias in the near-term in the 84-85 per dollar range,” she mentioned.
The outlook for the rupee has turned more positive than analysts’ expectations.
Tariff-related uncertainty is likely to return as we approach the 90-day pause deadline. However, the US has signalled an increasingly softer stance on its tariff policies.
“With the US in advanced stages of trade negotiations with its trading partners, the possibility of an all-out global trade war has largely reduced, which bodes well for global demand and hence India’s exports,” said Gupta.
Apart from this, there is a growing belief that a US-India trade deal is likely to be finalised before the end of the year, which will give India further insulation from any tariff-related shocks.
US tariffs are increasingly viewed as positive for India’s exporters from increased trade diversification and a rejig in global value chains.
On the other hand, lower global commodity prices, especially oil, will benefit India by lowering the overall import bill. The report said India’s services exports can face some headwinds from weakening growth momentum in the US; however, the impact is unlikely to be significant.
The BoB report further stated that India’s external position will remain comfortable in FY26, with the CAD remaining at comfortable levels.
It noted that further support for the currency can also come from a recovery in FPI inflows as investors return to EM assets in a controlled and gradual manner.
–IANS
