For traders, Rupee is best bet among emerging market currencies

MUMBAI: It may be somewhat deceptive to study the USD-Indian rupee combination to get a sense of the state of the currency: while the rupee may be weakening against the dollar in line with a global trend, it is appreciating against many of its peers, as investors are sticking their neck out to bet that it could be different for India this time around.

Trades in non-deliverable forwards — an offshore derivative market — show that rupee is appreciating against the ringgit, rupiah, lira, real and others. “Relatively low volatility and a credible monetary policy have made the rupee a preferred currency to play short side bets on weak EM currencies,” said Anindya Banerjee, currency analyst, Kotak Securities.

“In the NDF markets, speculators are going long on the rupee and shorting in a weak EM FX, via the dollar,” he said. “This has made the rupee an outperformer.” For instance, investors are going long on the dollarrupee pair while shorting on the dollar-lira or other pairs. This way, they are actually selling dollars to buy rupee. On the other leg of the transaction, they are buying dollars to sell lira. This nullifies the dollar’s net position and results in buying rupee and selling lira. This suggests rupee’s gain against those emerging market currencies. As many as five emerging market currencies, including the Turkish lira, Brazilian real, Malaysian ringgit, Mexican peso and S African rand, have lost record value to the US dollar. “Being a commodity importer, India has benefited from the current global economic turmoil while some of the other emerging markets (having a high reliance on exports) have been negatively impacted,” said Brijen Puri, managing director, head of markets, JP Morgan (India).

“This has aided the relative outperformance of the rupee.” “In case of a global risk selloff, while the rupee would also lose value against the dollar, it should be relatively less impacted than other EMs,” he said. Other emerging markets are facing challenges due to the perceived instability of their high current account deficits, impact of lower commodity prices, slowing exports, lower domestic growth. When it comes to EM investments, India remains an attractive medium term choice, dealers said.