India shines brightest among slumping emerging markets

THE turnaround in India's fortunes since Narendra Modi assumed the role of Indian Prime Minister last year has been nothing short of spectacular.

The country, according to new GDP estimation methodologies, is deemed to have grown 6.9 per cent and 7.4 per cent in 2013 and 2014 respectively.

Meanwhile, the Modi administration is targeting a minimum of 8 per cent growth for the country this year - effectively outpacing the expansion in China's economy for the first time in more than a decade.

Prime Minister Modi's commitment to his economic reforms has seen the latest government Budget exhibiting an increased allocation to capital spending.

A goods and services tax that has been shelved for years due to previous differences over revenue splitting now look to have a good chance of being passed, which would go a long way in generating revenue for infrastructure development in the country.

External forces have also aided India's recent renaissance, with low commodity prices continuing to be a boost for the emerging market. India imports oil as its primary commodity; with oil prices expected to remain in the mid-range for the next half decade, the country has been bestowed a huge advantage in shrinking its current account deficit.

Wholesale and consumer inflation levels have also fallen, with the former hovering in deflationary territory. The twin reduction in both deficits ought to place India in good stead for the eventual hike in the US Federal funds rate; a repeat of the massive funds outflow witnessed in mid-2013 looks unlikely this time around.

With India looking to awaken from its long-drawn slumber, many investors have started to look at India as an attractive venue for investment.

One of the primary ways that investors have taken a position in India's resurgence is to purchase non-deliverable forwards (NDFs) on the Indian rupee against the US dollar. NDFs are essentially outright forward contracts which are settled in US dollars - an element important to the non-convertible property of the Indian rupee. NDFs are typically favoured by investors looking to invest in an emerging market currency as notional amounts are not exchanged and hence bear much lower counterparty and country risks.