India’s currency has seen a rally in recent days, but Barclays is warning traders to beware. Where is the Indian rupee headed?
As one of the leading lights among the world’s emerging economies, India’s economy is often the focus of international attention. But a surge in the rupee over the past few days has been met with calls for caution from a major bank.
Barclays Plc has warned investors to be wary of the rupee during the course of the country’s national elections, which begin on April 7th. Given that India’s sheer size, both in terms of geography and population, means elections are conducted over the course of a month, it may be difficult for some traders to take such a careful approach for the full length of time.
Long periods without a government are rarely good for a country’s markets, even if they are unavoidable in a country which needs close to one million polling stations. But analysts are concerned that if a clear winner does not emerge the currency could fluctuate wildly.
Speaking to Bloomberg, Hamish Pepper, Barclays Singapore strategist, said that investors should still be prepared to make the most of the currency’s current success. However, he also warned they should take profits before the electoral results come in to avoid sudden swings in the currency, suggesting that Mr Pepper feels the level of risk is just too high.
The Indian rupee has had a very good year so far, climbing 2.7 per cent since the start of 2014 on the back of global investment in the country’s debt and equities. But India has had economic problems of its own – as a major gold purchaser, traders there rushed to buy the precious metal when the price collapsed last spring. Its current account deficit widened as a result, though this is now improving. Investor confidence and a serious fiscal deficit have also weighed the rupee down.
However, 25 March saw the currency hit its highest level so far this year, as hopes of a decisive electoral outcome grew. The rupee gained on the dollar and came close to its highest level in eight months on the back of foreign investors. Emerging market currencies were just getting back on their feet after comments from Janet Yellen, chairman of the US Federal Reserve, played havoc with markets last week.
It is obvious that markets have seen the potential of the rupee and they are anxious to make the most of any gains that come along after the polls have closed. But it remains to be seen whether investors will play it safe as they have been advised.
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