Goldman Sachs has highlighted the Indian Rupee (INR) as a standout currency in the Emerging Markets Currency Complex (EM FX) due to its high tolerance-to-volatility ratio.
The firm noted that the appeal of INR is further enhanced when combined with short positions in the Euro (EUR) or 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 of exchange rate volatility.
According to Goldman Sachs, the trade-weighted INR closely matches the trade-weighted US dollar, with the rupee’s global betas below historical averages. The firm views this positioning as a key defensive component of any currency carry strategy in emerging markets. They continue to recommend short positions in .
In terms of valuations, Goldman Sachs believes the INR is slightly undervalued against the US dollar, attributing this to the dollar’s overvaluation rather than an Indian premium. The firm does not expect significant movements in the spot foreign exchange market after the completion of the Indian general elections in 2024.
This expectation is based on the expectation that the dollar will remain highly valued and the RBI’s currency management will likely limit any potential exchange rate reaction even if there is a post-election increase in foreign investment in India’s local equity and debt markets.
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