Rupee Offshore Forwards Gain Most in Two Weeks on Election Bets

Indian rupee forwards traded offshore strengthened the most in more than two weeks on optimism the main opposition party will win national elections and help revive economic growth.

The Bharatiya Janata Party and its allies probably won 249 to 340 seats, according to six exit polls released May 12, with 272 needed for a majority. The Congress party and its allies, in power for the past decade, probably won 70 to 148 seats as voters seek to punish them for graft scandals and the slowest growth in a decade. Results will be announced on May 16. The rupee and Indian bonds aren’t traded onshore today because of a holiday for local banks. Stock exchanges are open.

“Change is always welcome, and change is indeed what we will get,” said Patrick J Bennett, a Hong Kong-based strategist at Canadian Imperial Bank of Commerce, referring to the probability of a new administration in India. The exit polls are signaling an election outcome that would be in line with investor expectations, he said.

One-month offshore non-deliverable forwards on the rupee gained 0.5 percent to 59.77 per dollar, according to data compiled by Bloomberg. That’s the biggest gain since April 25. The contracts advanced for a seventh day, the longest winning streak since January 2012. Three- and 12-month offshore forwards also rose 0.5 percent each. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

In the onshore spot market, the rupee strengthened 0.6 percent yesterday to 59.67 per dollar, according to prices from local banks compiled by Bloomberg. The currency may appreciate to 58.50 should the BJP and allies get 272 seats, according to Canadian Imperial’s Bennett.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, declined 35 basis points, or 0.35 percentage point, to 10.54 percent, according to data compiled by Bloomberg. That’s the lowest since April 16.

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