When indian rupee It has been the second best against the rupee in terms of carry returns so far in 2023, which is set to change in the second half of the year as investors including Amundi SA and HSBC Holdings Plc see the former as an exceptional alternative. The Indian currency offers more compensation for risk than the rupee, with a carry-to-risk ratio of 2.8 compared to only 0.5 for Indonesia, according to data compiled by Bloomberg.
Higher bond yields in major Asian countries and a less volatile currency due to central bank intervention are boosting the appeal of rupee assets. Foreigners have invested $10 billion in Indian stocks so far this quarter, helping the rupee to top the currency charts.
“In terms of the Indian rupee, carry and macro financial stability are attractive for the currency,” said Alessia Berardi, head of EM macro and strategy research at Amundi. “If you have an Asia specified portfolio, or want Asia exposure, this is the currency you want to go to.”
Investor sentiment towards India is on the rise amid one of the fastest growth rates among the world’s major economies. Foreign funds are banking on higher yields in local currency Indian debt as the central bank has kept rates on hold until early next year.
The benchmark 10-year Indian bond yields 7.07%, while Indonesian notes of the same maturity yield 6.30%. Investors who borrowed dollars to buy rupee fixed-income assets have earned 4.5% in the first half of the year, compared to 2.1% for India. On Monday, the rupee gained 0.1% to 81.9550 per dollar.
“The Indian rupee’s low volatility makes it a strong carry trade candidate,” said Johnny Chen, portfolio manager at William Blair Investments. “Given the relatively high weighting of commodity-related exports in Indonesia, the Indonesian rupiah may be subject to greater volatility.”
According to data compiled by Bloomberg, the rupee’s one-year implied volatility fell over 100 basis points this year to 5.21% on June 23, its lowest since 2007. It is the lowest in Asia after the Hong Kong dollar.