Mumbai: India’s rupee rose to a five-month high as optimism the economy will rebound in Prime Minister Manmohan Singh’s second term prompted overseas investors to buy more of the nation’s shares.
The currency is set for its best week in 13 years as foreign funds bought $1.1 billion more Indian equities than they sold on 19 May, the most since June 2007. Money managers based abroad are betting Singh will push through reforms and unveil more stimulus packages to bolster Asia’s third biggest economy.
The overall sentiment is bullish on the rupee because the prospects of growth fundamentals are getting stronger, said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. The rupee is going to remain attractive in the short term.
The rupee strengthened 0.2% to 47.385 a dollar at the 5pm close in Mumbai, according to data compiled by Bloomberg. It touched 47.29 on 19 May, the strongest level since 19 December. The rupee’s 5.7% gain this month is the best in Asia.
Offshore contracts indicate traders bet the rupee will trade at 47.53 to the dollar in a month, compared with expectations for a rate of 47.67 on Wednesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Foreigners have bought a net $3.12 billion of Indian equities this month, adding to purchases of $1.6 billion in April, according to the Securities and Exchange Board of India. The Bombay Stock Exchange’s benchmark Sensex index has surged 68% since closing at a three-year low on 9 March.
Singh’s Congress party-led alliance scored the biggest election victory in two decades on 16 May. He told lawmakers from his party on 19 May that he will focus on inclusive growth, job creation, adding the country faced daunting challenges given the global recession.