Rupee to Gain from US Trade Deal, Portfolio Flows: Natixis Economist

Speaking with ANI, Nguyen said sentiment toward India has begun to turn more constructive after a period of sharp volatility, during which the rupee briefly weakened to around 92 per dollar even as the US dollar itself was depreciating globally.

"If you look at the rupee, it was depreciating to 92 to a dollar against the picture where the dollar was depreciating -- it was the worst FX in Asia," Nguyen said. "Yesterday, it turned out to be the best and appreciated very sharply. I think that the sentiment is shifting for India."

At the time of filing this report, the Indian rupee was trading at 90.374 per US dollar, largely unchanged from the previous day's close but down from its all-time low of 92.

Nguyen attributed the change partly to expectations that the India-US trade deal will boost India's export income, providing a stronger underlying flow of foreign exchange.

In her view, trade support could be reinforced by a broader reallocation of global capital toward Indian assets, including both equities and bonds.

"I think that this trade deal will allow it to have more export income, and as a result, will provide more support," she said. "And I think another part of that equation, of course, is FDI and portfolio flows."

Beyond short-term flows, Nguyen highlighted the importance of foreign direct investment dynamics. While gross FDI inflows into India remain positive, net FDI has often been neutral or even negative, reflecting fund repatriation.

"I think net FDI should be positive for India," Nguyen said. "Because if it's a country with a lot of potential, it should be reinvested."

Nguyen described herself as constructive on the rupee, arguing that recent developments have lifted a major burden on the currency.

She pointed to the sudden imposition of a 50 per cent tariff in 2025 by the US as a significant shock that weighed heavily on the rupee and unsettled both investors and policymakers.

"Much of the challenge for India is really this drag. Suddenly it just kind of faces that 50 per cent tariff, which is a big shock, to be honest, for everybody," she said. "And I think that huge burden on the rupee is being lifted (now)."

While Nguyen does not expect a sharp or sustained appreciation against the US dollar, she believes the currency has scope to recover part of its earlier losses and stabilise at stronger levels.

"Will it appreciate significantly against the dollar? I don't think so," she said. "But I do think that there's room for it to appreciate a bit and kind of retrace a lot of the losses."

On RBI monetary policy, Nguyen said she does not expect the Reserve Bank of India to cut interest rates in the immediate term, despite manageable economic indicators.

She also argued that holding rates at current levels would preserve a wide interest-rate differential between India and the US, helping attract foreign capital. "I actually think that they'll hold on for now and just give that differential between the US and India to be quite wide enough to attract capital," Nguyen said.

"I am very constructive on the rupee," Nguyen said. "I think it has a lot more room now to kind of trade more in line with its fundamentals. And I think that will gain support."

- ANI