Full circle of money flow to emerging countries in one year from Aug 2013 to Sep 2014

In August 2013, India faced the worst currency crisis in the wake of US taper tantrum. Indian currency had lost 20.1 percent from beginning 2013 and rupee slumped 3.9 percent to an unprecedented 68.8 per dollar the biggest drop since 1993. The market was in panic mood and RBI and Indian government were trying every thing to stop this mayhem. Some measure like capital control taken by Indian authorities fired back as foreign funds sens that India can freeze their funds or investments. Indian Bond yields was raising and and benchmark government 5Y bond touched the highest yields since 2001.

India has come to long way from August 2013 to August 2014. Rupee is stable and everyone is talking about the Indian growth story in next 5 to 10 years. Mood has completely changed and with corrective measures RBI governor Rajan is well prepared for the further tapering of Fed. Recently ICICI has raised $500m through 5.5 yead bonds, pricing tighter than at it's own funding curve. Money has started flowing back into India and this is the case with almost all emerging countries.

Credit spreads on U.S. dollar-denominated emerging market bonds are back to pre-tantrum levels from early 2013.Bond yields of emerging countries has been tighten and prices are touching all time high. Money is flowing to emerging countries at alarming rate and this is  because of easy monetary policies across the world. There will be a reversal of this money sooner or later but looks like investors are not thinking about that and if this happen suddenly than there could be knee jerk situation again. Indian central bank chief has mentioned his worry on this and he said that we can not reliance on foreign capital, this  money will exit for better use in home countries. Most of the market participants think that this reversal could happen when US do the first rate increase. 

However it is expected that India will be less impacted due to reasons like crude oil is cheaper, high foreign exchange reserve and most importantly India currently has pro business and stable government.