Rupee Completes Second Weekly Advance as India Inflows Climb

  • Foreign holdings of local stocks, bonds rose this week
  • EM outlook improving as Fed seen delaying rate rise: Religare

India’s rupee completed a second weekly gain amid optimism demand for local assets is picking up as investor sentiment toward emerging markets improves.

Overseas funds bought a net $211.9 million of Indian shares this month after withdrawing $3.46 billion in August and September. Foreign holdings of rupee-denominated debt have also risen in October. Asian equities and currencies rallied this week as signs the Federal Reserve won’t raise interest rates this year boosted demand for riskier assets. India’s central bank on Sept. 29 cut borrowing costs by more than economists estimated and unveiled a plan to grant foreigners greater access to sovereign bonds.

“The outlook toward emerging markets is improving as investors see less chances of a Fed rate hike this year,” said Gaurav Sharma, a senior currency analyst at Religare Commodities Ltd. in Noida, near New Delhi. The rate cuts by the Reserve Bank of India and higher foreign investment limits for bonds should bring more inflows, he said.

The rupee strengthened 1.2 this week and 0.5 percent on Friday to 64.7350 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. It rose to 64.7250 earlier, the highest level since Aug. 13. The currency rallied 1.4 percent in September to be Asia’s best performer and its top forecaster sees that position being maintained through year-end.

Sovereign bonds also capped a second weekly advance, with the yield on the notes due May 2025 dropping two basis points to 7.55 percent, according to prices from the RBI’s trading system. The yield, which rose one basis point on Friday, slumped to 7.51 percent on Oct. 5, the lowest close for benchmark 10-year debt since July 2013. The S&P BSE Sensex index of local shares has jumped 3.5 percent in October.

The limit on foreign holdings of government bonds will be raised in phases, the central bank said on Sept. 29. It cut the benchmark repurchase rate by 50 basis points to a four-year low of 6.75 percent, helping the 2025 notes complete their biggest weekly climb since June. India plans to sell 150 billion rupees ($2.3 billion) of debt at an auction Friday.

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