Rupee to remain under pressure as high global yields, geopolitical risks drive outflows: Akhil Mittal
Akhil Mittal warns the Rupee faces continued pressure due to high global yields, geopolitical risks, and shifting capital flows toward the US.
The Indian Rupee is expected to face ongoing headwinds as high interest rates in developed economies and mounting geopolitical tensions continue to drive capital away from emerging markets. According to Akhil Mittal, Senior Fund Manager of Fixed Income at Tata Asset Management, a significant reversal of foreign investor flows into India is unlikely in the near term unless global financial conditions undergo a fundamental shift.
The Pull of Developed Markets
Mittal highlighted that the current trend is largely driven by a broader migration of global capital toward the United States. As interest rates and bond yields remain elevated in Western economies, investors are increasingly drawn to these safer, higher-yielding environments, leaving riskier assets in markets like India behind.
"As long as globally, especially the developed world, they stay high, it is difficult to assume that there will be any near-term reversal of flows into risk assets like India," Mittal stated, emphasizing that the sanctity of Western interest rates plays a decisive role in currency movement.
Key Drivers of Currency Volatility
The expert identified several critical factors that must align before the Rupee can find significant relief:
- Geopolitical Stability: A resolution to the tensions surrounding the Iran-US conflict is essential.
- Interest Rate Shifts: Greater stability and a potential easing of bond yields in Western economies.
- Crude Oil Concerns: Ongoing volatility in energy prices remains a primary macroeconomic challenge for India.
While inflows through Foreign Currency Non-Resident (FCNR) deposits might help address India's immediate dollar requirements, Mittal cautioned that they may not be enough to counteract sustained outflows if global yields remain high and geopolitical risks persist. He expects the underlying direction of the Rupee to lean toward depreciation, though short-term fluctuations of 1-2 per cent are possible.
Market Outlook: Equities and IT Stocks
Despite the negative trend in net Foreign Portfolio Investor (FPI) equity flows—a situation Mittal noted has not been seen since 2015—he remains optimistic about the medium to long-term attractiveness of Indian markets. He pointed to India's strong growth outlook, supported by policy stability, manageable inflation, and fiscal discipline.
However, he warned investors to prepare for near-term volatility, noting that the market is more likely to experience sharp rises and falls rather than a steady, one-way rally.
Indian IT as a Natural Hedge
Turning his attention to the technology sector, Mittal suggested that Information Technology (IT) stocks currently appear relatively inexpensive. Interestingly, he views the sector as a potential "natural hedge" against the growing uncertainty surrounding Artificial Intelligence (AI) investments.
"As long as the uncertainty around AI flows and AI investments keeps growing or keeps adding there, Indian IT does provide a natural hedge and hence, we'll see suitors and buyers," he explained, suggesting that the sector could attract significant interest as global AI-related concerns intensify.