India’s rupee surged the most since 1986 on speculation Prime Minister Manmohan Singh’s electoral victory, the biggest for any local politician in two decades, will help speed up economic reforms and lure overseas funds. The currency rose to the highest level against the dollar this year after Singh’s Congress party and allies won 261 of the 543 seats in the lower house of parliament, exceeding the most optimistic prediction for 216 in exit polls. The wide margin by which Singh won will enable him to form a stable government that need not depend on communists or regional parties, according to Standard Chartered Plc. “A stable, pro-reform government is just what India required amid signs of economic expectations bottoming out to inspire investor confidence,” said Priyanka Chakravarty, an analyst at Standard Chartered in Mumbai. “We view this as a positive development for Indian markets and the rupee, providing the much required extra push to the wall of money that has been waiting to buy.” The rupee strengthened 3.1 percent, the most since March 1986, to 47.92 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. That took its gains this month to 4.5 percent, the best among the 10 most-active Asian currencies outside Japan. Offshore contracts showed traders pared bets for losses in the rupee. The contracts indicate predictions that the currency will trade at 48.00 to the dollar in a month, compared with expectations for a rate of 49.70 at the end of last week. 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. Record Stock Rally India’s benchmark stock index posted a record 17 percent gain, prompting exchanges to halt trading for the rest of the day. Overseas funds have bought a net $1.8 billion in Indian equities this month, according to data released by the Securities and Exchange Board of India. Singh, who initiated India’s economic liberalization as finance minister in 1991, will continue with reforms following his government’s latest electoral victory, a key adviser said. The Reserve Bank of India last month forecast the $1.2 trillion economy would expand 6 percent in the fiscal year that began April 1, the slowest pace since 2003. “It’s a foregone conclusion that reforms will continue,” Suresh Tendulkar, top economic adviser to the prime minister, said in an interview today. “At the same time, the government will have to tread carefully in opening up the economy given the global slowdown and bad market conditions.” Reforms to Accelerate The rupee is likely to rally to 46 a dollar in three months as economic reforms accelerate, according to Royal Bank of Scotland Group Plc. Should Singh’s government lay out a road map for fiscal “consolidation,” the threat of a sovereign rating downgrade will diminish, Sanjay Mathur, a Singapore-based analyst at RBS, wrote in a research note today. The currency’s gains will be limited as India will still receive less foreign capital this year than in 2008 because the credit crisis has reduced the availability of funds globally, according to Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking Corp. in Singapore. “It’s easy to be distracted by the election,” Yoshikoshi said. “In the long run, I don’t expect capital inflows into India to continue like we saw up until the first half of last year. Investors are not so leveraged and they don’t have that much money to pour into the market.”

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