Outlook for rupee turns more positive as India remains attractive bet for investors

New Delhi: Given India’s strong macro fundamentals and growth prospects, it remains an attractive bet for investors and this, along with stable domestic macros and stable external position, are likely to provide further support to the rupee, according to a new report.

The rupee appreciated further by 1.1 per cent in April, after appreciating by 2.4 per cent in March. A sharp decline in the dollar due to a weakening economic outlook and lower global oil prices supported the gain in rupee, said the Bank of Baroda (BoB) report.

“Equity inflows turned positive in April after a gap of 3-months signalling an improvement in investor sentiment. A softer US stance on tariffs has supported an improvement in investor sentiment. US officials have indicated that significant progress has been made on trade negotiations with its trading partners, which is likely to lift investor sentiments,” said Aditi Gupta, Economist, Bank of Baroda.

Hence, emerging market (EM) assets could see a gradual recovery in foreign inflows.

“We expect rupee to trade with an appreciating bias in the near-term in the range of 84-85 per dollar,” she mentioned.

The outlook for rupee has turned more positive than analysts’ expectations.

Tariff-related uncertainty is likely to return as we approach the 90-day pause deadline. However, US has signalled an increasingly softer stance on its tariff policies.

“With the US in advance stages of trade negotiations with its trading partners, the possibility of an all-out global trade war has largely reduced which bodes well for global demand and hence India’s exports,” said Gupta.

Apart from this, there is a growing belief that a US-India trade deal is likely to be finalised before the end of the year which will give India further insulation from any tariff related shocks.

In fact, US tariffs are increasingly being viewed as positive for India, providing opportunities for India, providing opportunities for India’s exporters from increased trade diversification and rejig in global value chains.

On the other side as well, lower global commodity prices, especially oil, will benefit India by lowering the overall import bill. India’s services exports can face some headwinds from weakening growth momentum in the US, however, the impact is unlikely to be significant, said the report.

The BoB report further stated that overall, this means that India’s external position will remain comfortable in FY26 as well, with the CAD remaining at comfortable levels.

Further support for the currency can also come from a recovery in FPI inflows as investors return to EM assets in a controlled and gradual manner, it noted.

IANS