Case Study: India's 2013 Taper Tantrum and Currency Crisis

On 22 May 2013, US Federal Reserve chairman Ben Bernanke told Congress the Fed could start slowing its bond purchases. Within weeks, foreign investors pulled billions of dollars out of Indian bonds and equities, the rupee slid from about 55 to a record low near 69 to the dollar, the 10-year government bond yield crossed 9%, and India was lumped into the Fragile Five, a list of emerging markets judged most exposed to a turn in global money. This case study follows the episode from start to finish through an investor's eyes. It begins with the cheap dollar world that quantitative easing created and the weak spots India carried into 2013: a wide current account deficit, high inflation and stalled projects. It then tracks the tantrum itself, the FII exodus and the panic of late August, and the policy fightback, from RBI's liquidity squeeze and the gold import curbs to Raghuram Rajan's arrival and the Fed's surprise decision not to taper in September. It then looks at what happened to each asset class, from IT and pharma stocks that gained on a weaker rupee to banks, infrastructure and debt funds that took the hit. It closes by comparing 2013 with the 2018 and 2022 sell-offs and gives you a simple checklist of indicators to watch before the next one. No prior macro knowledge needed beyond the basics.