The rupee climbed to the highest in almost a decade as the benchmark stock index rose to a record, raising expectations that global funds will buy more local equities.
The currency gained for the fourth day after Citigroup Inc. and Deutsche Bank AG said the Bombay Stock Exchange’s benchmark index, Sensex, will add to gains for the seventh year as a near-record pace of economic growth boosts company earnings. Prime Minister Manmohan Singh on Tuesday said “conditions are favourable” for the nation to sustain a growth rate of between 9% and 10% in the next five years.
“Strong fundamentals are giving confidence to investors, which is why we will see flows sustaining even this year,” said Puneet Sharma, chief currency trader at state-owned Allahabad Bank in Mumbai.
The currency gained to 39.275 against the dollar at the 5pm close in Mumbai, the highest since 26 February 1998, according to data compiled by Bloomberg. It closed at 39.295 on Monday.
The rupee, which last year posted the biggest annual gain since at least 1974, may reach 39 this month, Sharma said.
Overseas investors bought a record $17.2 billion (Rs67,596 crore today) more of Indian equities than they sold in 2007, according to the Securities and Exchange Board of India.
An initial share offering of as much as $3 billion this month by Reliance Power Ltd, a generating unit of India’s second biggest electricity producer by market value, may also attract overseas portfolio investors. India grew at an average 8.6% in the four fiscal years through March.
“We expect growth momentum to be maintained,” Ratnesh Kumar, head of research at Citigroup’s Indian unit, wrote in a note to clients on Monday. He expects the economy to expand 9% and company earnings to grow by 20% in the year ending 31 March 2009.
The Sensex, which completed the sixth winning year in 2007, climbed to a record for the third day. The index, which rose 47% last year, may add as much as 20% by end-December, Citi said. Deutsche Bank expects the 30 Sensex companies to report 23% higher earnings in fiscal 2009.