BLBG: Indian Rupee Gains as Equity Rally May Attract Investment Flows
India’s rupee gained for the first time this week as signs of a global recovery boosted stocks, spurring optimism foreign investors will increase their holdings of the nation’s shares.
The currency trimmed yesterday’s 1.3 percent loss as derivatives linked to a key local share index surged offshore after reports showed U.S. consumer confidence jumped the most in six years and Japan’s export slump eased. Average daily purchases of Indian stocks by global funds more than doubled this month as risk aversion waned. India’s Finance Secretary Ashok Chawla said today that the government will decide on selling shares in state-owned companies.
“With capital inflows looking good and Indian index futures rising overseas, the rupee has reversed yesterday’s negative bias,” said Krishnamurthy Harihar, treasurer in Mumbai at the Indian unit of FirstRand Ltd., South Africa’s second- largest financial services company. “Government plans to sell stakes of state-owned companies will attract more money in the future.”
The rupee strengthened 0.5 percent to 47.705 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. That took gains this month to 5 percent, the best performance among the 10 most-traded Asian currencies.
Stock Purchases
Offshore contracts indicate bets the rupee will trade at 47.86 to the dollar in a month, compared with expectations for a rate of 48.05 yesterday. 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.
Funds based abroad bought Indian shares worth $3.5 billion more than they sold this month, according to data released by the Securities and Exchange Board of India. Purchases exceeded sales by an average $208 million a day this month, compared with $97 million in April.
The SGX CNX Nifty Index futures for May delivery traded in Singapore, derived from the 50-share S&P CNX Nifty Index on the National Stock Exchange of India Ltd., rose 4.2 percent. The Bombay Stock Exchange’s Sensitive Index gained 3.8 percent in Mumbai.
The U.S. Conference Board’s sentiment index surged to 54.9 in May, from a revised 40.8 last month, a report showed yesterday. Japan’s shipments fell 39 percent in April from a year earlier, following a 45.5 percent slide the previous month, the Finance Ministry said today.
Rupee Versus Peso
Investors should buy the rupee against the Philippine peso, according to currency strategists at Bank of America Securities- Merrill Lynch.
Prospects for the rupee have “improved significantly” following the ruling Congress party’s election victory this month, the strategists wrote in a research note dated yesterday. The peso may weaken as sliding exports and flat remittances from overseas workers hurt the Philippine economy, and the central bank signals the possibility of further interest-rate cuts, the note said.
The rupee slid 0.5 percent to 0.9904 pesos today, according to data compiled by Bloomberg. Bank of America-Merrill Lynch predicts the rupee will strengthen to 47 per dollar this year, and the peso will slide to 51 versus the greenback from 47.37.
