External factors to slightly weaken INR for rest of 2016

In the past month, the INR appreciated against the USD mainly because of US dollar’s weakness and major appetite for INR assets. Since March 1, foreigners have purchased USD 4.8bn worth of Indian equities. However, this is unlikely to be sustained as according to indicators, INR is overbought, said Nordea Bank. External factors are likely to slightly weaken the Indian rupee for the remainder of 2016, added Nordea Bank. The US Fed’s normalization policy and renewed uncertainty regarding China are two of the factors putting downward pressure on the INR.

However, the rupee is expected to be hurt the least amongst other currencies as it will continue to be a favourite for investors. The INR is likely to be stronger against the US dollar in the longer term due to India’s improved fundamentals and comparatively higher growth potential, said Nordea Bank.