Rupee Completes Biggest Weekly Gain Since 2013 on Equity Inflows

  • Currency rises 2.3% as government sticks to budget goals
  • Foreign investors bought $860 million of shares in three days

India’s rupee completed its biggest weekly gain since September 2013 as foreign funds pumped money into local stocks amid a revival in global sentiment for equities.

Overseas investors, who withdrew a net $1.2 billion from Indian equities in February, have added back $860 million in the first three days of this month, data compiled by Bloomberg show. The inflows follow Monday’s budget announcements by Finance Minister Arun Jaitley, including retaining the government’s goal of narrowing the fiscal deficit to a nine-year low and boosting spending on roads, ports, power plants and other public projects.

“The budget lays down the foundation for long-term growth and that’s impressed investors,” said Ankur Jhaveri, co-head of currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “The rebound in global equities has coincided with the budget, further aiding rupee sentiment.”

The rupee rallied 2.3 percent from Feb. 26 to 67.0950 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It rose 0.4 percent on Friday and climbed to as high as 67.0850, the strongest level since Jan. 14. The S&P BSE Sensex index of shares surged 6.4 percent this week, its biggest gain since December 2011.

RBI Adviser

A rebound in oil prices, improvements in U.S. economic data and optimism that China will increase stimulus to spur growth have helped revive appetite for emerging-market assets. The rupee’s recent rally has helped pare its 2016 decline to 1.4 percent. The currency fell to 68.7875 a dollar on Feb. 26, near a record low of 68.845 seen in August 2013.

The resumption in foreign inflows to Indian stocks should support the rupee, Ashima Goyal, an adviser to the Reserve Bank of India, said on Friday, adding that the currency will stay in a 67-69 a dollar range this year.

Indian sovereign bonds also gained this week. The yield on notes due January 2026 dropped 15 basis points to 7.63 percent, prices from the RBI’s trading system show. That’s the biggest weekly slide for 10-year benchmark debt since October.

The yield fell three basis points on Friday as Goyal said the central bank has scope to cut interest rates immediately given the government’s pledge to narrow the budget deficit.

“There is room for them to move right away, though they might stick to the timetable as there isn’t much time left for the April 5 policy meeting,” said Goyal, a member of the RBI’s technical advisory panel that makes policy recommendations to Governor Raghuram Rajan. “The budget has delivered enough because they have stuck” with their fiscal consolidation plans, she said.

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