Rupee rises on record overseas investment in stocks; bonds gain

Rupee rises on record overseas investment in stocks; bonds gain

Mumbai: The rupee strengthened as overseas investors increased holdings of the nation’s stocks to a record as the economic recovery gains traction. India’s bonds gained on speculation the government’s plan to sell shares in state-run companies will help narrow the fiscal deficit.

Ownership of Indian equities by funds based abroad has climbed 36% since March to reach $70.3 billion (Rs3.25 trillion) as of 16 November, data from the Securities and Exchange Board of India showed. Industrial production rose 9.1% in September, beating analysts’ estimates for a 7% gain, a government report showed on 12 November.

India’s economic outlook is one of the most optimistic among emerging as well as developed markets and that’s sure to attract investment, said Priyanka Chakravarty, a currency strategist at Standard Chartered Plc in Mumbai. Spells of choppy trading aside, the rupee is expected to keep its strengthening bias in the coming months.

The rupee gained 0.2% to 46.22 per dollar, according to data compiled by Bloomberg. It rose to 46.00 on 16 November, the highest level since 20 October. The currency has advanced 4.1% this quarter, the best performance in Asia.

Offshore contracts indicate bets the rupee will trade at 46.22 to the dollar in a month, compared with expectations of 46.30 on Tuesday.

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.

India’s bonds gained for a fourth day, the best winning streak in two months.

The yield on the benchmark 10-year note declined to the lowest level in more than two weeks after the finance ministry said last week the nation has 60 companies in which it can sell stakes to raise funds. India’s budget deficit may reach 6.8% of gross domestic product, the most since 1994, in the year to 31 March, according to the ministry.

There are reasons to believe that the supply of debt in the near future will be less because of the approach of policy makers towards bringing back overall stability, said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. Yields will decline at a faster pace now.

The yield on the 6.9% note due July 2019 dropped two basis points to 7.26%, the lowest level since 3 November, according to the central bank’s trading system. The price rose 0.12, or 12 paise per Rs100 face amount, to 97.51.

In the derivatives market, 10-year bond futures maturing in December were traded at 8%, according to the website of the National Stock Exchange of India Ltd. Contracts due March were at 8.27%.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was unchanged. The rate, a fixed payment made to receive floating rates, was 6.67%.