India’s rupee appreciated against the dollar for a second day after overseas investors increased holdings of the nation’s shares to a record.
The currency touched its strongest level in a week after Securities and Exchange Board of India data showed foreign investment in stocks rose $6.6 billion this year to an all-time high of $79.4 billion on June 24. The Bombay Stock Exchange’s Sensitive Index, or Sensex, has gained 4.9 percent this month after the government said June 11 that factory output grew 17.6 percent in April, near the most in at least 16 years.
“The important thing for the rupee is how the Sensex fares,” said Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd. “The rupee is a capital-flow story due to its twin deficits. The fiscal deficit is doing well as the economy is doing well. But the problem is that stock flows are needed for the current account.”
The rupee strengthened 0.2 percent to 46.21 per dollar as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It rose as high as 46.055 earlier, the strongest level since June 22. The currency may advance to 45.80 by Sept. 30 and 45.60 by Dec. 31, Wee said.
Offshore forwards indicated the Indian currency will trade at 46.69 to the dollar in three months, compared with expectations of 46.90 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
India’s economy expanded 8.6 percent last quarter from a year earlier, the second-fastest pace among major economies, the government reported on May 31. The South Asian nation’s current account shortfall was $12.03 billion in the three months ended Dec. 31, the most in five quarters, according to the latest central bank data.