BofA Bullish on INR Ahead of Elections; Advises Caution on USDINR Options

BofA's latest analysis points to a bullish outlook for the Indian Rupee (INR) as the country heads into elections. The fundamental landscape appears robust, supported by improvements in the current account and visible debt capital flows. This optimism is reflected in long INR positions and carry trades funded by low-yielding currencies. However, market attention is now turning to the Reserve Bank of India's (RBI) stance on INR management post-elections.

Expectations suggest RBI's response to election outcomes may lean towards INR depreciation tolerance. While INR appreciation aligns with strong fundamentals and political stability, RBI might be less tolerant of FX weakness if election results indicate a thinner majority or a fragmented government. BofA recommends a cautious approach, suggesting investors buy USDINR down-and-in one-touch options to hedge against potential election-related volatility.

Post-election volatility concerns are also on the radar, with INR's volatility showing a slight uptick from recent lows. Although risk-reversals indicate some topside skew, overall market sentiment appears relatively sanguine about election outcomes. The market's confidence in a stable government and RBI's intervention capabilities against INR depreciation are contributing factors. However, elevated concerns over RBI's continuous accumulation of reserves and its impact on INR market dynamics persist.

While RBI's reserve accumulation strategy remains unchanged, questions linger about its sustainability amid near all-time high FX reserves. Investors are wary of potential asymmetries in market flows if RBI continues to absorb capital inflows and limit INR appreciation. Despite the election uncertainty, BofA suggests hedging strategies involving long-dated out-of-money USDINR call options and short-dated at-the-money or lower strike options, anticipating RBI's steady INR stance in the short term but potential relaxation against INR weakness in the future.

As investors navigate the intricacies of election-related market dynamics and RBI's evolving policies, caution remains the watchword. With the specter of volatility looming, prudent risk management strategies and a nuanced understanding of RBI's intervention tactics are essential for safeguarding investments in the INR space.

Also Read: Unlocking the Power of Value Investing with THIS Easy Peasy Approach

For investors looking to make better-informed decisions, InvestingPro offers its powerful fair value feature for any stock in their portfolio. Now available at a steep discount of up to 69% or INR 216/month, this tool is a game-changer. Don’t miss out—grab your offer today by clicking here

X (formerly, Twitter) - Aayush Khanna

Begin trading today! Create an account by completing our form

Privacy Notice

At One Financial Markets we are committed to safeguarding your privacy.

Please see our Privacy Policy for details about what information is collected from you and why it is collected. We do not sell your information or use it other than as described in the Policy.

Please note that it is in our legitimate business interest to send you certain marketing emails from time to time. However, if you would prefer not to receive these you can opt-out by ticking the box below.

Alternatively, you can use the unsubscribe link at the bottom of the Demo account confirmation email or any subsequent emails we send.

By completing the form and downloading the platform you agree with the use of your personal information as detailed in the Policy.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Back to top

Office network

One Financial Markets is the trading name of Axi Financial Services (UK) Ltd, a company registered in England with company number 6050593. Axi Financial Services (UK) Ltd is authorised and regulated by the Financial Conduct Authority in the UK (under firm reference number 466201) and the Financial Sector Conduct Authority in South Africa (with FSP number 45784).

The information on this site is not directed at residents of the United States, Belgium, Poland or any particular country outside the UK and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. is owned and operated by Axi Financial Services (UK) Ltd.

Award winning broker
We have been presented with a number of awards that recognise the quality of our service and dedication to our clients :

Best FSA Regulated Broker
Saudi Money Expo

Best Education Product
Saudi Money Expo

Best Broker - Online Trading
IAIR Awards

Best Institutional Broker
Saudi Money Expo

Best FX Services Broker
CN Forex

Top International
FX Broker 2015

Saudi Money Expo

Broker of the Year
Online Trading – Middle East

IAIR Awards

Best Forex
Customer Service 2018

JFEX Awards

We accept the following payment methods: