Rupee advances as stock gains signal fund flows may rise

Rupee advances as stock gains signal fund flows may rise

Mumbai: The rupee advanced for a sixth day, the longest winning streak in more than a month, as stock gains added to speculation investors are increasing investment in the country.

The currency gained the most in more than five weeks after the government announced this week a Rs20,000 crore stimulus package, including a cut in consumption tax, to bolster economic growth.

Overseas investors bought more Indian shares than they sold on four of the first six trading days of this month, data from the Securities and Exchange Board of India (Sebi) showed.

The rupee’s bias is to strengthen as the region’s stock market sentiment is generally positive, said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. Dollar sales may increase as capital inflows improve.

The rupee strengthened 1.1% to 49.02 per dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. Eight of the 10 most traded Asian currencies outside Japan gained on Wednesday.

The rupee has rebounded 2.8% from a record low of 50.615 touched on 2 December. The currency’s 20% loss this year is the biggest since 1991, when a balance of payments crisis forced India to pawn its gold with the International Monetary Fund to pay for imports.

India’s benchmark share index, the Sensex, climbed 5.4% on Wednesday, adding to Tuesday’s 2.2% gain.

That’s the biggest two-day advance since 10 November. Overseas funds bought $76.2 million more local equities than they sold this month, according to Sebi.

The rupee also gained as offshore forward contracts showed traders scaled back bets for how far the currency will weaken in the next month. Non-deliverable contracts show the currency will trade at 49.08 a month from now, compared with expectations for 50.03 on 5 December.

There’s been good dollar selling in the non-deliverable forward (NDF) market, Corporation Bank’s Bhatt said. That’s bound to influence the rupee locally too.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. The rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.

India’s 10-year bonds rose, pushing yields to the least since March 2005, on speculation falling borrowing costs will boost demand for debt.

The notes advanced for a third day as banks and securities companies may have bought the securities with borrowed funds as the overnight interest rate in the local money market stayed near an eight-month low.