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The euro is set to become a more attractive currency for international funding in 2012, which would work in favour of Indian equities, Morgan Stanley says.
Our currency team points out it now appears that EUR rates are ... on a declining trend, and we would expect a fall below the average G10 carry in 2012, which would be consistent with our view of the EUR becoming a funding currency of choice in 2012, Morgan Stanley said.
U.S. rates, on the other hand are moving higher on a relative basis, reducing the USD's attraction as a funding currency.
The bank says the correlation of Indian stock markets returns with the U.S. dollar will break down and that the correlation with the euro will increase.
We are already getting early signs of this over the past three months and expect these trends to accentuate over the coming months, the bank said.
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