Improvements in India’s current-account and inflation along with its high yields make the nation the top Asian investment for GAM, a group with $127 billion in assets.

A lot of the vulnerabilities that led to the 2013 rout in the rupee along with the currencies of Brazil, Indonesia, South Africa and Turkey have been almost wiped out in India, Paul McNamara, London-based investment director, said in an interview. The fund is overweight on both Indian government bonds and the rupee. It sees the currency holding steady at around 64.5 per dollar by year-end and the 10-year yield between 7.50 percent and its current level of 7.77 percent.

“If you talk about the fragile five, India is far and away the clearest country to exit that group,” McNamara said. “They have a central banker of international renown who is cautiously trying to change the situation,” he said. “India is the strongest story on the continent.”

The following charts show how the rupee has outperformed the currencies dubbed the “fragile five” by Morgan Stanley in 2013, the current-account deficit narrowing, slower inflation boosting real yields and foreign reserves climbing under the stewardship of Reserve Bank of India Governor Raghuram Rajan.  [Click on link in article to access these]

David Fuller's view

The charts in this article give one plenty of reasons for why India remains a promising investment.

However, it will often be volatile, in line with other emerging markets.  Therefore, if you are building a position in India, the best time to buy is following a correction, such as we have seen since this year’s February and March highs.

India’s latest rally was boosted by the arrival of the monsoon last weekend (see Tuesday’s Comment of the Day).  However, this article: El Nino Threatens Modi Inflation Hopes as Monsoon Stymied, comments on the risk of an El Nino drought occurring in mid-July.  The vagaries of India’s weather reports may remain an important influence on Sensex market action over the next two months.