Asia's worst-performing currency may be best bet this year

Investing in Asia's worst-performing currency is all about the interest rate. While the rupee fell 0.3 percent versus the dollar this year, flows from stock investors turned positive in March amid slower inflation, an improved current account and budgetary discipline.

Including interest, investing in rupees will earn 2.5 percent from now until Dec. 31, according to strategists' forecasts, the most in emerging Asia.

"The rupee remains a very attractive play over a one-year horizon," said Viraj Patel, a London-based strategist at ING Groep NV, among the most-accurate rupee forecasters in Bloomberg's rankings. "Lower inflation, a subdued currentaccount deficit, high growth and carry will all pay dividends in the future as the global economy turns the corner."

Interest rates below zero in Europe and Japan are attracting investors to a nation that has the second-highest yield among key Asian markets and the fastest growth among major economies. The rupee's allure has been burnished by cen- tral bank Governor Raghuram Rajan's success in replenishing foreign-exchange reserves and taming consumer prices and the trade deficit. Prime Minister Narendra Modi's Feb. 29 budget sparked a rally in India's rupee, bonds and stocks as the government's resolve to narrow the fiscal deficit to a nine-year low boosted investor sentiment. Data showing inflation eased to a four-month low in February also increased odds of interest-rate cuts by Rajan, while demand for emerging-market assets has picked up amid global central bank stimulus.