Rupee Rises to Five-Week High as Opposition Gains Fuel Stocks

India’s rupee and stocks rose to the highest level in at least a month as an exit poll showed the nation’s main opposition party was poised to win four of five state elections before a national vote next year.

The Bharatiya Janata Party, which picked Narendra Modi as its choice for prime minister, was set to retain two states, take power from the ruling Congress in another and win the most seats in Delhi, according to an exit poll yesterday. Modi, the chief minister of Gujarat state since 2001, has overseen annual economic growth of 10 percent on average and attracted investment to companies from Ford Motor Co. to the Tata Group.

The rupee rose 0.5 percent to 61.7650 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 61.5350 earlier, the strongest level since Oct. 31. The S&P BSE Sensex of stocks jumped 1.2 percent to 20,957.81, the highest close since Nov. 5.

“Markets are rallying on the hope that policy reforms will make a comeback,” Manish Sonthalia, a Mumbai-based money manager at Motilal Oswal Asset Management Co., which oversees about $200 million in equities, said in a Bloomberg TV India interview. “Sentiment will improve drastically.”

The yield on the 8.83 percent notes due November 2023 was at 8.783 percent compared with 8.777 percent yesterday, prices from the central bank’s trading system show.

Yields on 10-year U.S. Treasuries climbed four basis points over two days to 2.83 percent and reached 2.85 percent yesterday, the highest level since Sept. 18.

Final Test

The contests are the final test for India’s two major parties before a national vote that must be held by May 2014. Prime Minister Manmohan Singh’s Congress-led coalition has seen corruption scandals, accelerating inflation and the weakest economic growth in a decade erode its popularity. Goldman Sachs Group Inc. raised India to market weight on Nov. 5 from underweight, saying the state polls may signal an opposition win in the federal vote, helping spur investment.

“The market has taken heart from the overnight political news,” Nick Verdi, a strategist at Barclays Plc in Singapore, said in a phone interview.

ICICI Bank Ltd. surged 6.5 percent, the biggest advance in three months, sending a measure of lenders to its highest close in more than four months. Axis Bank surged to a five-week high. CLSA Asia-Pacific Markets “favors” the two banks as cyclical stocks will do well with the possibility of a stable national government, the brokerage said in a note today.

Larsen & Toubro Ltd., India’s largest engineering company, headed for the highest close in 11 months, sending the S&P BSE Capital Goods Index to its highest level in six months.

Stimulus Concerns

Adani Enterprises Ltd. climbed to the highest level since Jan. 22, leading a rally among companies based in Gujarat, the home state of Narendra Modi.

India’s rupee and stocks rose even as investors speculate that the U.S. may pare monetary stimulus as early as this month. U.S. companies added 215,000 jobs in November, topping estimates, a private survey showed yesterday. Data tomorrow are projected to show the unemployment rate in the world’s biggest economy fell to 7.2 percent to match a five-year low.

Overseas investors have purchased a net $17.7 billion of Indian equities this year, the most in Asia after Japan, data compiled by Bloomberg show. They bought a net $1.1 billion of stocks in November, the third monthly inflow, the data show.

Voter Poll

The Indian exit poll conducted by C-Voter and broadcast on the Times Now channel showed the Hindu nationalist BJP gaining its highest seat tally since 1993 in Delhi, while falling short of a majority. The BJP will have 31 of the capital’s 70 seats, with the incumbent Congress taking 24. The Aam Aadmi Party, which campaigned against corruption while contesting its first election, was poised to win 11 seats, the poll showed.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slipped one basis point to 8.41 percent, data compiled by Bloomberg show. One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 20 basis points to 12.18 percent.

Three-month offshore non-deliverable rupee forwards rose 0.8 percent to 63.11 per dollar, according to data compiled by Bloomberg. 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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