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According to Amy Yuan Zhuang, analyst at Nordea Markets, Narendra Modi has likely secured five more years in power despite the mixed economic scorecard from his first term and believes that the INR faces limited upside in the coming year, but we argue that it remains attractive over the long term.

Key Quotes

“The world’s largest democracy, with more than 900 million registered voters, just concluded its month-long general election. The official results, due on 23 May, will likely confirm the exit polls: Prime Minister Narendra Modi will stay in office for another five years. His Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) is predicted to have won more than 60% of the 545-seat parliament.”

“While the Indian rupee will likely gain versus the dollar in the coming few months as election uncertainties evaporate, its upside potential on a two-year horizon is limited as the pace of reforms is not expected to exceed that of the past five years.”

“The INR remains attractive on a horizon beyond two years, in our view, benefiting from the economy’s vast potential, net capital inflows and the government’s efforts to diversify the economy. More manufacturing exports should help counterbalance the large oil imports and reverse the current account deficit to a surplus.”