The rupee, which slid 21 percent in the past two years, looks “cheap” relative to India’s improving external finances, according to Goldman Sachs Asset, which opened a “small long” position on the currency this year. William Blair has boosted the currency to about 20 percent of its foreign-exchange holdings for its higher yield and inexpensive valuation, said Chicago-based fund manager Brian D. Singer.
The rupee has rebounded more than 10 percent from last year’s all-time low of 68.845 per dollar as India curbed gold imports to shore up the current account and the central bank acted to spur dollar inflows. Only Indonesia’s rupiah has fallen more than the rupee among Asian emerging markets.
Options are signaling increased confidence in the rupee as external balances improve and price pressures cool. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, has eased to 8.17 percent from last year’s peak of 22.4 percent in September, according to data compiled by Bloomberg.
Carry traders, who borrow in currencies with lower yields and buy those with higher rates, have earned 4.1 percent on rupee investments using dollars since Sept. 30, the most among 23 emerging-market currencies tracked by Bloomberg. Favorable policies will help the rupee and Indonesia’s rupiah perform better than currencies of other nations with current-account deficits such as Brazil, Turkey and South Africa, Goldman Sachs Group Inc. economist Fiona Lake wrote in a Feb. 19 report.
The appointment of Rajan, an economist credited with presaging the 2008 global financial crisis, as the RBI’s head encouraged William Blair, which oversaw more than $72 billion as of Dec. 31, to boost bullish positions on the rupee, according to portfolio manager Singer.
“The rupee is a cheap currency with significant carry,” he said in an interview in Melbourne yesterday. It “has deviated from fundamentals and should not be included in the fragile five,” he added, referring to a description used by Morgan Stanley last year to describe currencies most vulnerable to capital flight.