May 20 (Bloomberg) -- India’s rupee will rally more than 8 percent by March as prospects of a stable government improve the outlook for growth and capital inflows, Barclays Plc said.

The biggest election win for Prime Minister Manmohan Singh’s Congress party-led alliance in two decades will help revive economic reforms and attract $19 billion into Indian stocks in the year ending March 31, said Sailesh Jha, an economist at the world’s third-largest currency trader. Standard Chartered Plc today raised its short-term rating for the rupee to “overweight” from neutral, saying Singh’s victory has “tilted the scales” in favor of India.

“Our domestic growth outlook is improving and global risk aversion is falling at the same time,” Singapore-based Jha told reporters in Mumbai. “In our view, risky currencies, such as in emerging markets in Asia, will outperform. We are bullish on the rupee.”

The local currency appreciated for a fourth day, rising 0.3 percent to 47.61 as of 4:15 p.m. in Mumbai, according to data compiled by Bloomberg. It may climb to 47 by end-September, 45 by end-December and to 44 by the end of March, according to Jha.

The rupee has surged 3.8 percent since the election results were announced over the weekend, and is the best performer this month among the 10 most-active currencies in Asia outside Japan.

The median estimate of 28 strategists surveyed by Bloomberg News is for the rupee to trade at 50 a dollar by September, 49.1 by December and at 48.44 by March.

Better Conditions

Capital inflows will help the nation’s balance of payments to post a surplus of $44.4 billion in the year ending March 31, Jha forecast, reversing Barclays’ earlier estimate for a deficit of $3.4 billion. India’s economy, Asia’s third biggest, may expand 7 percent in the fiscal year, he said, raising Barclays’ earlier forecast for growth of 5.5 percent.

“The BoP position will improve because global goods and services exports are improving in the industrialized economies,” Jha said. “Better economic conditions globally will also increase remittances.”

The deficit in India’s balance of payments widened to a record $17.9 billion in the three months to Dec. 31, compared with a shortfall of $4.7 billion the previous quarter.

The rupee has rallied almost 10 percent since touching a record-low 52.185 a dollar on March 3, compared with a 27 percent gain for the South Korean won in the same period and 19 percent for the Indonesian rupiah, Bloomberg data show.

The Indian currency has lagged behind others in the region because of the election-related uncertainty, Standard Chartered’s Mumbai-based analysts Anubhuti Sahay and Priyanka Chakravarty wrote in a research note to clients today.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.

Last Updated: May 20, 2009 07:13 EDT