India’s rupee rose for a fifth week, the longest winning streak since February, as global funds bought more of the nation’s stocks on speculation the government’s policy changes will spur economic growth.
Prime Minister Manmohan Singh’s cabinet yesterday approved proposals allowing overseas companies to own as much as 49 percent of insurers and permitted foreign investment in pension funds for the first time. The bills, which will need parliamentary consent, follow steps announced in September to cut the budget deficit and attract capital.
“The wave of positive reforms from India has caught the market’s attention,” analysts at Citigroup Inc., including Singapore-based Gaurav Garg, wrote in a research report. “The outperformance of the rupee to other regional peers is here to stay as the reform juggernaut keeps rolling.”
The rupee advanced 1.9 percent this week to 51.8550 per dollar in Mumbai, the best performance among Asian currencies, according to data compiled by Bloomberg. It dropped 0.2 percent today, erasing losses after earlier touching 51.3875, the strongest level since April 18. The currency will strengthen to 50 in the coming months, according to Citigroup, which recommends buying the rupee against Singapore’s dollar and the South Korean won.
One-month implied volatility, a measure of exchange-rate swings used to price options, rose 10 basis points, or 0.10 percentage point, to 11 percent. The gauge has fallen 40 basis points this week, the largest drop in a month.
Global funds added $4.1 billion to holdings of Indian shares last month, the biggest inflow since February, after 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. Offshore investors bought a net $199 million of equities in the first three days of this month, exchange data show.
The currency dropped today as Indian stocks fell after erroneous orders led to a plunge and halt in trading on the S&P CNX Nifty Index that briefly erased about $58 billion in value.
Three-month onshore rupee forwards were at 52.83 a dollar, compared with 52.80 yesterday, and offshore non-deliverable contracts were at 52.61 from 52.57. 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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