Mumbai: India’s rupee gained for a fourth day on speculation that the pace of the country’s economic growth, the fastest in almost two decades, is encouraging overseas investors to buy local equities.
Overseas fund managers may buy shares of companies such as real-estate developer DLF Ltd, which is selling shares next week. That will increase capital inflows and help the rupee extend its 8.5% gain this year.
The rupee also advanced on speculation the central bank will allow it to keep strengthening to help temper inflation.
“Capital flows remain unabated,” said L.V. Prasad, chief currency trader at IndusInd Bank Ltd in Mumbai. “That is keeping the dollar supply ample and helping the rupee rise.”
The rupee rose to 40.52 against the dollar as of the 5pm close in Mumbai, from 40.5275 on Monday, according to Bloomberg data.
Importers such as Indian Oil Corp. Ltd, the nation’s largest refiner, will save costs purchasing dollars after the rupee gained 8.5% this year. Lower import costs are important for India as it meets three-quarters of its energy needs from abroad. The rupee, which on 28 May reached the highest in nine years, is the best-performing Asian currency this year.
“The rupee will weaken a bit,” said Vikas Babu, a currency trader at state-owned Andhra Bank Ltd in Mumbai. “The current levels are attractive enough for importers to cover some of their foreign-exchange demand.”
Meanwhile, government bond prices declined moderately due to fresh selling from banks and corporates, while call rates ruled steady in the absence of market-moving factors on the call money market on Tuesday. The 7.59% government security maturing in 2016 dropped further to Rs96.41 from Monday’s Rs96.68 while its yield moved up to 8.17% from 8.12%.
The 7.38% government security maturing in 2015 closed lower at Rs95.62 from Rs95.77 previously while its yield moved up to 8.12% from 8.09%. The 9.39% government security maturing in 2011 ended marginally down at Rs105.20 against Rs105.23 on Monday while its yield inched up to 7.87% from 7.86%. The 8.07% security maturing in 2017 also eased to Rs99.86 from Rs99.89 on Monday while its yield edged up to 8.09% from 8.08%.
The call rate ended at Monday’s closing level of 0.50% after moving in a range of 0.30% and 0.75%.
The central bank, under the Liquidity Adjustment Facility, received 39 bids of Rs56,745 crore at the one-day repo auction at the rate of 6.00% in the morning but it accepted only Rs1,998 crore.