Global funds added $44 million to holdings of local shares on Oct. 1, taking this year’s inflows to $16.2 billion, exchange data show. Singh cut fuel subsidies, opened retailing and airlines to foreign investors, and reduced a tax on local companies’ overseas borrowing to 5 percent from 20 percent. India still needs to achieve political consensus to implement the measures, according to Credit Agricole CIB.
“The recent round of announcements has fueled hopes that India could begin to build a backdrop more favorable to productivity gains and a rebound in investment,” analysts at Credit Agricole, including Paris-based Sebastien Barbe, wrote in a report today. Although “in the medium term there could be some caution about the rupee given the remaining uncertainties, the tactical rally may continue in the short term.”
The rupee advanced 0.8 percent to 51.7450 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 51.6675 earlier, the strongest level since April 18. The currency will appreciate toward 50 in the coming months, according to Credit Agricole. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 20 basis points, or 0.20 percentage point, to 10.90 percent.
Indian ministers will consider today increasing the cap on overseas investment in local insurance ventures and allowing for the first time foreign direct investment of as much as 26 percent in pension funds.
The rupee also tracked gains in regional currencies after a report showed yesterday that U.S. employers added 162,000 jobs last month, topping the median forecast of 140,000 by economists surveyed by Bloomberg News.
Three-month onshore rupee forwards were at 52.80 a dollar, compared with 53.10 yesterday, and offshore non-deliverable contracts were at 52.57 from 52.94. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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