- Concern reforms blocked outweighs easing of FDI restrictions
- Sovereign bonds rise in shortened trading week after holiday
India’s rupee completed a fifth weekly decline after Prime Minister Narendra Modi’s party lost an election in a key state, heaping more pressure on the government to deliver on reform pledges.
The loss in Bihar, the nation’s third most-populous state, has raised concern Modi’s opponents will block his proposals in Parliament, including the introduction of a goods and services tax and the easing of labor laws. That’s diminished the impact of this week’s relaxation in investment rules, according to Kotak Securities Ltd.
“The political setback in Bihar and worries that higher U.S. rates could lead to outflows are weighing on the rupee,” said Anindya Banerjee, associate vice-president for currency derivatives at Kotak Securities in Mumbai.
The rupee weakened 0.5 percent in a shortened trading week to 66.10 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It rose 0.3 percent on Friday as markets reopened after a two-day holiday, while the S&P BSE Sensex index of shares declined 1 percent.
Global funds have sold a net $65 million of Indian equities this month, just as an imminent interest-rate increase in the U.S. risks spurring further capital outflows as local assets become less attractive.
The easing of investment rules included allowing foreigners to own 100 percent of cable and direct-to-home TV operations and duty-free shops, the government said in a statement on Tuesday. Overseas investors can also purchase a 49 percent stake in defense companies and regional airlines without state approval, while the application process for other acquisitions was simplified.
The yield on India’s 10-year government bonds fell four basis points this week and on Friday to 7.65 percent, according to prices from the central bank’s trading system.