As the euro rate slides, its correlation with the Sensex might rise and directly affect Indian equities
Hedge funds and professional investors are always looking for countries with lower interest rates where borrowing is cheaper and then invest the same in countries with higher interest rates. Earlier, it was the Japanese yen that gave them this opportunity. After the Lehman crash, the dollar became the funding currency of choice. Investors sold dollars where interest rates were low and purchased currencies like the Indian rupee where the interest rates were high. This carry trade is now moving to the euro.
(This story appears in the 02 March, 2012 issue of Forbes India. To visit our Archives, click here.)