As the global markets flopped at the end of last week under the repeated threat of the Federal Reserve removing its support for the US economy, one market decided to go the other way – India.
The fact that the BSE index, or Sensex, often ignores global equity trends is not the point. In fact the last time the Fed looked as though it was going to “taper” off its $82bn (£59bn) quantitative easing programme Indian stocks were knocked sideways along with every other emerging market and the rupee collapsed.
By September it had fallen 20% since the beginning of the year to an all-time low against the dollar. The reasons were threefold – an escalating current account deficit, a too-big budget deficit and the prospect of foreign money being sucked back to the US as interest rates there started to move back up.
So what has changed, and why has the prospect of “tapering” not created a rerun of what happened in September?
Instead foreign investors seem to be content to hang in there – the rupee hit a five-week high on Thursday and the stock market is flirting once more with all-time highs.
If there is one event that changed sentiment it has to have been the appointment of Raghuram Rajan, as governor of the central bank, the Reserve Bank of India (RBI).
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.