USD/INR: UBS recommends shorting India's rupee

Investing.com -- UBS Group AG (NYSE:UBS ) is advising investors to short the Indian rupee and reduce their holdings in the country's stocks. The Swiss banking institution's research division suggests that India's $4 trillion economy is experiencing a structural slowdown. This downturn isn't attributed to cyclical factors such as oil price fluctuations or sluggish government expenditure.

The research group cites a long-term decline in credit growth, foreign direct investment, export competitiveness, and earnings potential as reasons for the slowdown. These factors are expected to deteriorate further after Donald Trump assumes the US presidency.

Manik Narain, the London-based head of Emerging Market strategy research at UBS, challenges the conventional belief that India is relatively insulated from the impact of Trump's policies compared to other emerging markets.

He emphasizes that a potentially prolonged period of high US yields could pose a challenge to India's growth. This is due to India's high debt service-to-revenue ratio, one of the highest among major emerging markets.

Over the past month, Indian stocks have seen nearly $500 billion wiped off their market value. This marks the worst start to a year since 2016, according to MSCI Inc (NYSE:MSCI ).'s index for the nation. The Indian rupee has also hit consecutive record lows against the US dollar, making it the worst-performing currency in Asia.

Additionally, India's bonds are experiencing their fastest outflows since 2020, as enthusiasm over their inclusion in global bond indexes fades.

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Source: Investing.com