Reuters Markey Eye - Credit Agricole expects the rupee to strengthen to 52/dollar by the end of 2013, with the currency trading at relatively attractive valuations in REER terms and having priced in "many of the fundamental problems it faces."
Key imbalances in India's economy, including the current account deficit, will gradually diminish next year, says the brokerage.
However, risk-adjusted returns will be "less impressive" given the relatively high volatility in the USD/INR, it adds.
INR will also not benefit much from improvements in risk appetite given a "very low" correlation with risk appetite, Credit Agricole says.
USD/INR has been more sensitive to gyrations in the dollar, and Credit Agricole expects a gradual appreciation in the USD index over 2013 to constrain any strong rally in INR.
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With the Nifty breaching 8,500, sentiments are again bullish. But markets have been in the 8,200-8,600 range for some time and stocks across the board do not give the required confidence except for the liquidity factor. Many frontline stocks are not participating on the upside and the core sector is in a downtrend, writes Ambareesh Baliga. Column