After Indonesian Rupiah, the Indian rupee was among the best-performing Emerging Markets (EM) currencies in April. While the Indonesian Rupiah appreciated nearly 2% against the US dollar, Indian Rupee rose 0.41% against the greenback in April
Take a look at EM Currencies' spot returns against the US dollar in the month of April
The positive performance of the rupee has been attributed to the cumulative impact of the strong financial movements in India, including the drop in oil prices.
Following a 10% loss in value in 2022, the rupee has so far in 2023 stabilised at 81.84 to the dollar. The rupee has been fairly stable so far in 2023, despite the continued uncertainty surrounding capital outflows.
With crude oil now trading below $80 dollars per barrel, the Indian rupee has gained. Further, the US dollar index weakened as well in April. The continuous buying by FIIs into the stock markets is another reason for rupee recovery.
A resumption of overseas investment flows into Indian stocks over the past couple of months has also propped up the rupee, resulting in the local unit performing better than 10 other Asian currencies in April.
FPIs were sellers in the initial three months of this year. However, they changed their strategy and turned buyers in April. During the last few days of April, FII aggressively bought from the domestic market.
Foreign portfolio investors infused Rs 11,630 crore in the Indian equity markets in April on the reasonable valuation of stocks and appreciation in the rupee. India's current account deficit is declining, and if this trend continues the rupee may appreciate further.
The Rupee is currently in the midst of discussion for being accepted as a global tender. This is not the first time that the Indian rupee is going global. In the ’60s, nations like Malaysia, Kuwait, Bahrain, Qatar, and UAE all used the Indian currency, calling it the ‘Gulf rupee’. Over time, they replaced it with their own independent currencies.
After India announced its decision to make the rupee go global, neighbouring countries like Sri Lanka, Bangladesh, and Myanmar grabbed the opportunity. Rather, they expressed a ready desire to handle their bilateral and possible third-nation trade in the Indian currency.
Asia’s richest banker and Kotak Mahindra Bank CEO Uday Kotak on Friday highlighted a rare opportunity for the Indian Rupee to become global. According to Kotak, the world is “desperately looking for an alternative reserve currency to the US dollar”.
Changes like these happen once in a hundred years, said Kotak, adding that it is an opportune time for India to make rupee the reserve currency for the world.