Goldman Sachs has highlighted the Indian Rupee (INR) as one of the standout currencies in the Emerging Markets Forex (EM FX) pool, due to its high carry to volatility ratio.
The firm noted that the attractiveness of the Indian rupee is further enhanced when combined with short trades in Euro (EUR) or Chinese Yuan (CNH). Goldman Sachs expects the rupee to maintain its attractiveness as the Reserve Bank of India continues its cautious interest rate policy and strictly controls foreign exchange rate fluctuations.
According to Goldman Sachs, the trade-weighted Indian rupee closely tracks the trade-weighted US dollar, with global rupee interest rates below historical averages. The company considers this position as a key defensive element for any carry strategy at EM FX. They continue to recommend short positions in .
Regarding valuations, Goldman Sachs sees the Indian rupee as slightly undervalued against the US dollar, due to an overvaluation of the dollar rather than an India-specific premium. The company does not expect a significant movement in the spot FX market after the end of the 2024 Indian general elections.
This forecast is based on the prediction that the dollar will remain highly valued, and the Reserve Bank of India's foreign exchange management is likely to limit any potential currency market reaction, even if there is an increase in foreign investment in India's domestic equity and debt markets after the elections.
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