May 20 - India’s rupee strengthened for a third day as overseas investors added to their local stock holdings, betting Prime Minister Manmohan Singh will be more successful with economic reforms in his second term.
The currency traded near a five-month high as data from the stock market regulator showed equity purchases by foreigners exceeded sales on all but three of the 28 trading sessions through May 18. Several regional political parties have offered to support Singh’s coalition, which returned to power with an increased majority, spurring optimism he will push through policies to revive growth and attract investment from overseas.
“The rupee has a positive outlook as economic reforms are expected to accelerate,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. “We are seeing very good capital inflows into the market, mostly stock-related.”
The rupee strengthened as much as 0.3 percent to 47.630 per dollar, before trading at 47.715 as of 10:22 a.m. in Mumbai, according to data compiled by Bloomberg. The currency has jumped 3.6 percent after India announced on May 16 the results of its general elections.
Singh’s Congress party and allies won 261 of the 543 seats in the lower house of parliament, exceeding the most optimistic prediction for 216 in exit polls. The wide margin by which Singh won will enable him to form a stable government that need not depend on communists, who had earlier frustrated reforms, according to Standard Chartered Plc.
The Indian currency’s 4.9 percent gain this month is the best performance among the 10 most-active currencies in Asia outside Japan. It may rise to 47.50 in coming days, Babu said.
Offshore contracts indicate traders bet the rupee will trade at 47.79 to the dollar in a month, compared with expectations for a rate of 47.83 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Foreigners have bought a net $2 billion of Indian equities this month, adding to April’s $1.6 billion, according to the Securities and Exchange Board of India. The Bombay Stock Exchange Sensitive Index has gained 17 percent this week.
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