The rupee rose for a fourth day On Wednesday, its best run in a month, as sales growth at local auto-makers buoyed stock markets and spurred optimism that foreigners would add to their holdings. The currency reversed an earlier loss as the the Bombay Stock Exchange’s Sensex climbed 1.1 per cent after Maruti Suzuki said that June sales climbed 23 per cent, adding to signs that demand was picking up in Asia’s third-biggest economy. The rupee also gained on speculation that some exporters bought the currency, betting it would extend its advance.
The rupee strengthened to 47.90 a dollar at the 5 pm close in Mumbai from 47.905 yesterday, according to data compiled by Bloomberg.
Overseas investors bought more Indian shares than they sold in the past three days, ending nine consecutive days of net sales, according to data provided by the Securities and Exchange Board of India.
Current account
Offshore forwards contracts indicated that traders were betting on the rupee to decline to 47.97 in a month, unchanged from yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are used for currencies that aren’t freely convertible and are settled in dollars.
The country’s current account swung into surplus in the three months ended March 31 for the first time in two years, a central bank report showed yesterday. RBS forecasts the rupee will strengthen to 43 by the end of this quarter.
Yields fall to 3-week low
Five-year bonds gained, pushing yields to a three-week low, on speculation that local banks would boost holdings to meet central bank rules.
Yields on the benchmark notes slid the most in a week after a central bank report on June 26 showed that sovereign debt investment by banks, the biggest buyers of government securities, increased Rs 16,720 crore ($3.5 billion) in the two weeks ended June 5 to Rs 12.6 trillion. Indian lenders must invest at least 24 per cent of their deposits in federal bonds and other approved securities.
The yield on the 6.07 per cent note due May 2014 dropped by six basis points to 6.43 per cent at the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price advanced by 0.25 per cent, or 25 paise per Rs 100 face amount, to Rs 98.50. A basis point is 0.01 percentage point.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, increased. The rate, a fixed payment made to receive floating rates, was 6.295 per cent, compared with 6.275 per cent yesterday.
Deposits at Indian banks rose by Rs 3,660 crore in the two weeks to June 5, the sixth consecutive two-week period of gains, according to data from the central bank. Annual growth in savings has averaged 21 per cent this year.
Bonds also gained on speculation that demand for existing securities would increase because the government was scheduled to sell a smaller amount of debt this month than in June. “The fact that planned government borrowings are smaller this month is also encouraging,” IDBI’s Raghavan said.
India will sell as much as Rs 34,000 crore of bonds in July compared with Rs 60,000 crore this month, according to the Reserve Bank of India’s auction calendar.
