Modi's Election Test in Home State May Put Brakes on Rupee RallyBy
The Indian rupee’s rally since mid-November could see a turning point with elections in Prime Minister Narendra Modi’s home state of Gujarat, according to DBS Bank Ltd.
While opinion polls are signaling a win for Modi’s Bharatiya Janata Party, the margin of victory is seen narrowing. The vote is viewed by investors as a gauge of “Modi fatigue” and how much demonetization and the introduction of the goods-and-services tax have hurt the BJP, DBS analysts including Philip Wee wrote in a note.
A poll of opinion polls by news channel NDTV showed the party winning 105-106 seats in the western state, above the half-way mark to form a government, but well below the 150 seats it’s aiming for.
“Apart from a stronger tone for the U.S. dollar in the region, the rupee will also move lower with Indian equities if investors start fretting about how small the margin of victory will be for Modi and the BJP,” the DBS analysts wrote in Thursday’s note.
The rupee jumped 1.3 percent over the last two months, with a major boost coming from mid-November’s rating upgrade for India by Moody’s Investors Service. A resounding win for Modi in the nation’s most populous state earlier this year had triggered gains in the rupee.
Voting in Gujarat will take place in two phases, on Dec. 9 and Dec. 14. Results will be announced on Dec. 18.