In the near term, we expect the combination of incremental positive news on macros and Q4 seasonality to be supportive of INR. As such, we stick to our call of INR at 60 by Mar-14.
Moving forward, the trajectory will depend upon the manner in which Fed implements its taper plan and India’s general election outcome (expected by May-14). While a move towards 62-63 levels is likely on account of taper in early Q1 FY14, we believe the impact will be short lived and reversed as a majority government comes to power. The exit polls for state elections in Delhi, MP, Chhattisgarh, and Rajasthan are so far pointing towards the electoral balance tilting in favor of the BJP (see table below). In our opinion, irrespective of which national party led alliance comes to power, as long as the coalition is stable, domestic growth momentum would improve further in H2 FY15 and as such, we expect INR to move towards 58 levels by Dec-14.
