India’s currency rose to a four-month high while bonds and stock index futures rallied on optimism Prime Minister Manmohan Singh’s election victory will help his party implement reforms to boost economic growth. The currency jumped to 48.46 a dollar as of 9:06 a.m. in Mumbai, the highest since Jan. 12, while the SGX CNX Nifty Index futures for May 2009 delivery rose 410, or 11 percent, to 4,095 in Singapore today. The yield on the most-traded 6.05 percent note due February 2019 dropped 19 basis points, or 0.19 percentage point, to 6.23 percent in Mumbai, according to the central bank’s trading system. Singh’s Congress party and its allies won 260 of the 541 seats in the lower house of India’s parliament, the Election Commission said on its Web site on May 16, exceeding the most optimistic prediction for 216 in exit polls released by NDTV television channel after the five-week elections ended on May 13. “The election result is extremely positive and very, very bullish,” Madhusudan Kela, head of equities at Mumbai-based Reliance Capital Asset Management, the nation’s largest money manager overseeing $18 billion of assets, said in an interview. “This will provide a government which is stable and has powers to take decisions.” Rupee Outlook Kela predicted the rupee will gain as much as 15 percent by the end of next year and said stocks will rally after election tallies ensured a stable government. The Bombay Stock Exchange Sensitive Index climbed 26 percent this year, trailing measures in Brazil, Russia and China, on concern the election wouldn’t produce an outright winner. The nation’s benchmark stock index may surge as much as 20 percent over the next week as overseas investors purchase as much as $3 billion of Indian shares within a month, said Singapore-based Samir Arora, who oversees Helios Capital Management Pte, an India focused hedge fund. The stock market may draw overseas investments worth $10 billion this year as stimulus measures around the world increase trading, Kela said on May 16. Purchases of Indian equities by overseas investors last month exceeded sales by the most since October 2007 on waning risk aversion and on optimism India’s $85 billion stimulus plan will revive economic growth. ICICI, Tata Motors Domestic-driven industries such as banking and autos will perform well, Kela said, without naming any companies. Shares in ICICI Bank Ltd., India’s second-largest, gained 28 percent this year, while Tata Motors Co., the nation’s biggest maker of trucks, advanced 66 percent. The Sensitive Index won’t fall to its March lows, and probably will find a new base at between 10,000 and 11,000, Kela said. The Sensex rose 2.5 percent on May 15 to 12,173.42. “Bull markets are back, unless we see complete chaos in global markets,” Kela said. “India will outperform over the next one to three years.” The benchmark measure may rise to 14,500 following the election results, Deutsche Bank AG and Bank of America Corp. predicted. Deutsche Bank had earlier predicted the index will reach 11,500, while Bank of America didn’t provide an earlier target. The forecast represents a 19 percent increase from the May 15 close. Sensex’s Gains Credit Suisse Group also said today the Sensex may rise to 13,500 by the middle of next year as the election results draws more funds into the market. The forecast is 11 percent higher than the May 15 close. India’s financial services stocks were raised to “in- line” from “cautious” at Morgan Stanley, which said the results will boost the outlook for the economy and reduce the risks of non-performing loans. The rupee may appreciate 10 to 15 percent against the dollar over the next 12 to 18 months, Kela said. That’s more bullish than the median of 28 analysts in a Bloomberg survey for the rupee to end next year at 47 per dollar. The currency closed May 15 at 49.395 per dollar. India, whose international political ambitions include a permanent seat on the United Nations Security Council, wants to maintain annual growth rates in excess of 8 percent for two decades to reduce poverty. About 231 million Indians are undernourished, more than in Sub-Saharan Africa, according to the Food and Agriculture Organization. The World Bank estimates 41.6 percent of Indians live on less than $1.25 a day. Rural Jobs Congress has introduced a rural jobs program and created economic zones, many of them located in the countryside to create employment, boost consumer demand and win popularity. The party campaigned on a pledge to supply cheap rice and wheat and raise the minimum wage after writing off loans to poor farmers last year. Asia’s third-biggest economy expanded 5.3 percent in the quarter through Dec. 31, the slowest pace since 2003, while factory output in March shrank the most in 16 years. India will outperform other emerging markets as long as the government adopts a pro-growth, pro-reform stance, said Rahul Chadha, Hong Kong-based head of Indian equities at Mirae Asset Global Investment, with $46 billion in global equities. “We needed a stable government especially in the context of the global environment, which is still challenging,” Chadha said. “We need the government to kick-start the economy.”

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