Once 'fragile' India gets thumbs up from foreign investors

When Fed taper fears jolted emerging markets in 2013,India was one of the worst hit and was forced to raise interest rates to underpin its tumbling markets. Fast forward to this year, and history has been turned on its head. Not only is the US central bank raising rates, but India is widely expected next week to be the first country in Asia to cut policy rates this year.

 being concerned at India's falling policy rate premium over the United States, foreign investors are giving the country's markets the thumbs up.The rupee is rallying and the country's bonds are in demand,offering some of the best inflation-adjusted returns in Asia. Inflation, long a thorn in the economy, is at its lowest in five years, economic growth is picking up and the current account deficit is a fraction of its old self.

Prime Minister Narendra Modi unveiled a national goods and services tax on July 1, India's biggest tax reform since independence in 1947, raising confidence among investors that other measures to boost the economy would follow.

"The structural story for India remains pretty strong," said David Cornell, chief investment officer of London-based Ocean Dial Asset Management, which argues India and other emerging markets will outperform over the next 12 months.