The Indian rupee is likely to trade between 82 and 83 against the US dollar in the next financial year due to expected inflows on account of the Indian bond inclusion in global bond indices, experts said.
On March 26, the rupee fell to a record low of 83.45 against the US dollar in the closing minutes of the session due to a strong dollar demand from oil marketing companies and local importers.
“Though markets are always forward looking and thus discount future events in the current price, considering that these inflows are big, the rupee may face some knee-jerk appreciation in interims,” said Kunal Sodhani - Vice President - Shinhan Bank.
Further, Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said the rupee will remain rangebound between 82.50 and 83.75 against the US dollar in next month as flows get absorbed.
“Overall, I feel this range should continue with flows getting absorbed,” Bhansali added.
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Robust inflows
In FY25, the inclusion of India’s sovereign bonds in JPMorgan's Government Bond Index-Emerging Markets (GBI-EM) index could potentially draw $30 billion of foreign inflows into the country. This is expected to result in appreciation of the rupee against the US dollar.
Starting June, Indian government bonds will become a part of JPMorgan's bond index and this will bring potential inflows into local debt over a 10-month period.
Any major appreciation of the rupee is likely to be capped by the Reserve Bank of India’s (RBI) intervention in the market to absorb the flows, experts said. The RBI intervention is also likely to increase the foreign exchange reserves of India, they added.
Since the announcement of bond inclusion, inflows into the Indian debt market remained higher.
Investment by foreign portfolio investors (FPI) in the Indian debt market so far in the current calendar year stands at Rs 54,417 crore, as compared to Rs 68,663 crore in the whole CY 2023.
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Rupee at record low
As per Bloomberg data, the rupee has depreciated 1.4 percent so far this financial year, which dealers attributed to various external factors such as a weakening Chinese yuan, excessive dollar shortage in the system, higher US Dollar Index, and higher Brent crude prices, among others.
Dilip Parmar, Research Analyst, HDFC Securities, said the rupee’s depreciation is attributed to more external factors than internal ones as the weakness in the Asian currencies and broad-based strength in the dollar has pushed the rupee to a record low level.
“FPIs with unhedged rupee exposure selling government bonds after the rupee weakened also added pressure on the rupee,” said Harsimran Sahni, EVP & Head - Treasury, Anand Rathi Global Finance.
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