Photographer: Prashanth Vishwanathan/Bloomberg

Funds Gorging on India Assets Drive Rupee’s Best Week Since July

  • Local bonds seeing inflows for a fourth straight week
  • Fed delay to keep demand for Indian assets intact: Religare

India’s rupee completed its biggest weekly gain since July as foreign funds pumped money into local assets amid the Federal Reserve’s decision not to raise U.S. interest rates.

Overseas funds have been buyers of rupee-denominated debt for a fourth straight week, while inflows into stocks are the biggest since the five days ended Aug. 12. The Fed refrained from tightening this week, while the Bank of Japan reinforced optimism that it will keep in place measures to spur economic growth and inflation, boosting demand for emerging-market assets. Indian sovereign bonds also completed a weekly advance.

The rupee climbed 0.5 percent, the most since the five days ended July 1, to 66.6525 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. The currency, which ended little changed on Friday, has jumped 1.3 percent since June 30, set for its first quarterly advance in six.

Read: Rupee Forecasts Jump as Rally Shows Strategists Too Bearish

“The main driver for the currency this week is the Fed’s decision to not raise rates as that is going to keep demand intact for Indian assets,” said Gaurav Sharma, a senior currency analyst at Religare Commodities Ltd. in Noida, near New Delhi. “We expect the rupee to rise to 66.50 per dollar by next week on the back of more inflows.”

The S&P BSE Sensex index of equities also rose this week, with an initial share sale by India’s biggest private-sector life insurer helping boost investor appetite. The 60.6-billion rupee ($909 million) initial public offering by ICICI Prudential Life Insurance Co. drew orders of 10.5 times the amount of stock for sale, exchange data showed.

The yield on Indian government notes maturing in September 2026 slipped six basis points over five days to 6.80 percent, prices from the central bank’s trading system show. A pickup in monsoon rains eased concern over inflation, adding to the optimism for local bonds. The Reserve Bank of India next reviews monetary policy on Oct. 4.

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