India's Rupee Climbs for Second Day as Local Shares Extend Rally

  • S&P BSE Sensex completes biggest two-day advance since May
  • Jaitley: India's economic fundamentals are reasonably strong

India’s rupee climbed for a second day on speculation a rebound in local stocks will prompt global funds to add to their holdings.

The S&P BSE Sensex index, the nation’s benchmark equity gauge, completed its biggest two-day advance since May after slumping to a 15-month low on Monday. Options show confidence in the rupee is increasing on signs central bank Governor Raghuram Rajan will deploy the foreign-exchange reserves he built up over the past two years to stem volatility. While overseas investors have sold Indian stocks this quarter, their total purchases for 2015, at $3.8 billion, are the highest among seven Asian markets tracked by Bloomberg.

The rupee strengthened 0.2 percent to 66.4150 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It rose 0.4 percent on Tuesday. The currency has gained 0.1 percent in September, following a 3.5 percent retreat in August amid an emerging-market selloff triggered by China’s shock devaluation of the yuan.

“Gains in equities are aiding sentiment in the currency market,” said Sajal Gupta, head of foreign exchange and rates at Edelweiss Securities Ltd. in Mumbai. “On a relative basis, India remains among the best-performing economies.”

Official data last week showed gross domestic product increased 7 percent last quarter, putting India on par with China as the world’s fastest-growing major economy. India’s fundamentals are reasonably strong, and it has the potential to grow faster, Finance Minister Arun Jaitley said on Wednesday.

Swings Narrow

The rupee’s three-month implied volatility, a gauge of expected swings used to price options, dropped to 8 percent on Wednesday from as high as 10.08 percent in August, signaling reduced potential for losses.

Rajan said on Aug. 24 that India will use its reserves to stem rupee swings. Foreign-exchange reserves have fallen $3.4 billion from $355 billion on Aug. 21, a sign the Reserve Bank of India has been intervening to keep the exchange rate stable as the Federal Reserve considers raising borrowing costs.

The yield on notes due May 2025 was little changed at 7.77 percent, according to prices from the central bank’s trading system. It fell three basis points on Tuesday.

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