Goldman Sachs highlighted that the Indian rupee (INR) stands out in the emerging market currency complicated (EM FX) due to its high carry-to-volatility ratio.

The company noted that the attractiveness of INR increases even more when combined with shorting the euro (EUR) or Chinese yuan (CNH). Goldman expects the rupee to maintain its attractiveness as the Reserve Bank of India (RBI) continues its cautious interest rate policy and tight control over currency volatility.

According to Goldman Sachs, the trade-weighted INR closely follows the trade-weighted US dollar, with global rupee betas below historical averages. The company considers this position to be a key defensive element of any EM currency transfer strategy. They continue to recommend low positions in .

On the valuation front, Goldman Sachs believes that the INR is moderately undervalued against the US dollar, attributing it to an overvaluation of the dollar rather than an India-specific premium. The company does not expect any significant movement in the spot foreign exchange market after the conclusion of the 2024 general elections in India.

This expectation is based on the expectation that the dollar will remain highly valued and the RBI’s currency management is likely to limit any potential currency response even if there is an boost in foreign investment in local Indian equity and debt markets after the elections.

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