INR eyes on gains owing to domestic reforms, FDI inflows and Fed’s delay

Modi's government reforms: Reforms on tax, labour and land are all vital if India is to draw attention of FDI. Again, RBI is doing its part to help, announcing a range of measures to liberalize financial markets.

For an instance, it has augmented the current USD 30 bln limit for foreign investment in Govt. bonds by USD 18 bln (by March 2018 in stages; currently fully utilized and up to 5% of outstanding).

How could domestic demand prop up: Meantime, the coming Pay Commission Report, where employee salaries are linked to performance, could help in lifting domestic demand and productivity meaningfully.

FDI inflows: In a survey by EY, says India has emerged as the number one FDI destination in the world during the first half of 2015. With FDI capital inflows of US$30.8b, India has outpaced all other emerging economies, moving up to the premier position from being in the fifth spot during the corresponding period of the previous year.

India has been headed for a record FDI inflow, which is a consequence of macro-economic stability, fiscal consolidation, political stability, low inflation, interest rate cuts - so, the government has given huge impetus to all the correct things.

FDI Investments into manufacturing: FDI has seen resurgence as far as manufacturing is concerned, which is a positive for the government because manufacturing creates more jobs.

Fed's rate decision: All EM currencies have rallied to this week's highs today amid growing uncertainities that the Federal Reserve will hold off on hiking interest rates until 2016. With the available knowledge of chances of big moves ahead of fed's rate uncertain decision, it's hard to justify risking EM currencies like INR to make a dime.

As a result of all above key drivers we foresee USDINR is likely to trade negative majorly on the back of raised bets the Federal Reserve would not raise U.S. interest rates until 2016 and domestic reforms.