Indian rupee managed to be the top performing currency last month as the optimism generated by the new RBI Governor and a surprise delay in QE tapering by the Fed lifted investor sentiment towards the currency.
The rupee, which touched a record low of around 69 per dollar during the month of August, posted the biggest monthly gain of 6% in September, outshining major global currencies. Moreover, the gain reversed the four-month losing streak, posting the rupee’s best monthly run since September 2012. (Read: 3 Currency ETFs Crushed in Emerging Market Rout)
The Indian rupee had nosedived 29% since the start of the year to a fresh record low of 68.85 against the U.S. dollar on August 28, on fears of un-winding of the Fed’s bond-buying program. Moreover, the country’s economic problems including poor infrastructure and stubborn inflation, high interest rates, dependence on imported fuel and a current account deficit weighted down the rupee.
However, a series of positive measures by the new RBI Governor, Dr. Raghuram Rajan, has provided some relief to the ailing rupee. The Governor announced two concessional swap facilities in order to boost capital inflows into the country.
Additionally, Dr. Rajan laid out a road map to make the Indian banking sector more open and competitive. He further said that he was committed to liberalizing the financial market, strengthening the financial infrastructure and reducing restrictions on foreign investments. Moreover, the Governor recently decreased a key overnight interest rate, which was raised a few months back to combat the battering rupee.
Reigniting positive hopes, India’s exports during the month of September grew by 11.15%, while imports dipped 18.1%, contracting the trade deficit to the lowest level in the last two years.
Given the proactive measures and recent positive data, the rupee is expected to appreciate at least in the near term.
For investors willing to play this upward trend in the Indian rupee, we have highlighted two currency ETFs which provide exposure to changes in the Indian rupee against the dollar, moving higher as the rupee appreciates against the greenback. Notably, these ETFs have also recovered from their lows hit in August 2013 and also carry a Zacks Rank 3 or Hold.
WisdomTree Indian Rupee Fund (ICN)
The product charges an expense ratio of 45 basis points and manages an asset base $31.4 million so far. However, a low average daily volume results in a high bid-ask spread ratio for this product.