May 28 (Bloomberg) -- India’s rupee rose for a second day as a rally in local shares added to speculation global investors will increase holdings of the nation’s assets to benefit from its economic growth.
The rupee erased earlier losses of as much as 0.8 percent after the Bombay Stock Exchange’s Sensitive Index advanced 1.3 percent, extending yesterday’s 3.8 percent gain. Offshore funds have bought Indian equities worth $3.5 billion more than they sold this month, according to the capital markets regulator. The currency also gained on speculation some exporters converted their overseas earnings into rupees.
“The outlook for the rupee is quite positive as the stock market is showing a lot of resilience, attracting capital inflows,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “India’s growth prospects remain relatively strong. Some corporate dollar sales too helped the rupee strengthen today.”
The rupee gained 0.1 percent to 47.6525 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It fell as low as 48.09 earlier, the weakest since May 18.
Offshore forwards contracts indicate traders predict the rupee will fall to 47.81 in a month, compared with expectations for a rate of 47.86 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.
Economic Growth
India’s government estimates the economy expanded around 7 percent in the financial year ended March 31, the second-fastest pace among major economies after China. The Reserve Bank of India forecast the nation’s economy will grow 6 percent this fiscal year.
The rupee fell earlier on speculation rising bond yields in the U.S. will increase borrowing costs and thwart the Federal Reserve’s efforts to reduce consumer rates, stimulate demand and revive the world’s biggest economy.
The difference in yields between two- and 10-year U.S. Treasury notes widened to a record yesterday due to rising sales of securities to fund the government’s stimulus spending and bank bailouts. Yields on 10-year notes climbed more than 100 basis points since Fed officials said in March they would buy up to $300 billion of U.S. debt over six months.
Source : www.bloomberg.com