Following on the G-20 summit last weekend, iFlow indicators over the past several sessions have reflected a willingness on the part of global investors to once again start making forays into select asset markets.
As a result of the slight recovery in risk appetite, we are seeing emerging market currencies that had been strongly sold off at the beginning of the year, beginning to attract inflows. Whether this fresh buying proves tactical or strategic remains to be seen in the coming weeks. For example, the budget in India was a strong positive surprise for global investors, with the Finance Minister advocating prudence and aiming for a smaller budget deficit target of 3.5% of GDP in fiscal year 2016-17. Local equities have gained strongly as a result (the benchmark SENSEX is up about 7% in the past three post-budget sessions). The INR has also posted gains thus far this week, gaining to 67.34 vs the USD today from levels above 68.75 last week. However, as Chart 1 shows, real money investors have been slowly increasing their rupee exposure in anticipation since late-January as they availed of better re-entry levels as USD/INR rose above the 68 level.
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