Mumbai: The rupee rose, extending eight weeks of gains, on optimism that the nation’s rising stock market will attract greater investment from overseas.
The currency climbed to near the highest since February 1998 after the benchmark share index, Sensex, rallied to a record, surpassing the 19,000 level for the first time. Data from the stock market regulator showed funds based abroad more than doubled their average daily share purchases this month.
“Market sentiment still favors a stronger rupee,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “Equity-related inflows are good and the stock market continues to be bullish.”
The local currency strengthened 0.2% to 39.3075 per dollar at the 5pm close in Mumbai, according to data compiled by Bloomberg. The rupee has gained 12.6% this year, the second-best performer out of 17 most-traded Asia-Pacific currencies. The Australian dollar, with a 13.7% advance, is the biggest gainer.
Overseas investors bought an average $493.4 million a day more Indian stocks than they sold this month, compared with net purchases of $232.2 million in September, according to the Securities & Exchange Board of India.
The Bombay Stock Exchange’s sensitive index climbed 3.5% to a record 19,058.67 on Monday, adding to eight weeks of gains. The index is headed for a sixth yearly gain.
The rupee also strengthened on speculation that US interest rates will keep declining, increasing the attraction of higher-yielding emerging-market assets.
“The Fed is expected to cut rates again and that would boost the rupee,” Corporation Bank’s Bhatt said.
The US central bank, which last month lowered its benchmark rate for the first time since 2003, may reduce borrowing costs again at its next meeting on 31 October, according to a Bloomberg survey of economists. The Fed may reduce the key rate to 4.5%, after lowering it half a percentage point to 4.75% on 18 September, the survey forecasts.
Purchases of local shares by overseas investors increased after the Fed cut rates on 18 September.
Daily investment has averaged $472 million since 19 September, compared with $64 million in the month through 18 September. Bloomberg