Rising Rupee Hedging Costs May Further Dim India’s Appeal to Global Funds

Good morning...

I’m Alex Gabriel Simon in Mumbai, with a check on market mood at the start of what looks set to be another volatile week.

Traders remain cautious as the Middle East conflict shows little signs of easing. US President Donald Trump has imposed a fresh ultimatum and threatened to strike power plants and other civilian infrastructure in Iran if the Strait of Hormuz is not reopened. At home, all eyes will be on the rupee when markets reopen after the long weekend. The currency posted its biggest gain in more than 12 years on Thursday after the central bank intensified its crackdown on speculation. The RBI is slated to announce its rate decision on Wednesday, with local bond yields near two-year highs. Rising borrowing costs are weighing on the outlook for corporate earnings as the March-quarter reporting season begins. Add sustained foreign investor selling to the mix, and it is clear that bears still have the upper hand in the stock market.

In today’s newsletter, we look at why:

But first, here’s how costly hedges are making local assets unattractive for foreigners.