India’s rupee rose the most since September, extending its rebound from a record low, as investors reassessed expectations for a reduction in U.S. stimulus. Stocks and bonds surged the most in at least a year.
Confidence in Indian assets was also boosted as the government agreed to raise natural gas prices, which FirstRand Ltd. (FSR) says will encourage local explorers and cut dependence on imports. Federal Reserve Bank of New York President William C. Dudley said yesterday policy makers may prolong their asset-purchase program should the world’s biggest economy fail to meet forecasts. More Fed officials are due to speak today.
The gas-price increase “is a huge positive for the rupee,” said Harihar Krishnamoorthy, Mumbai-based treasurer at the Indian unit of FirstRand. “We should see more voices from the U.S. downplaying global concerns and the rupee should see a more steady correction from here.”
The rupee surged 1.4 percent today to 59.3900 per dollar in Mumbai, the biggest advance since Sept. 21, 2012, according to prices compiled by Bloomberg. That pared its drop this quarter to 8.6 percent, still the largest since the period ended September 2011. The rupee has weakened 4.6 percent this month, and touched an unprecedented 60.7650 on June 26 after the Fed’s June 19 signal that the central bank may begin paring asset purchases this year.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose five basis points today to 12.79 percent. It surged 479 basis points, or 4.79 percentage points, this quarter and 356 basis points this month.
India’s Cabinet yesterday approved a report by a panel that recommended linking natural-gas prices to global benchmarks. Prices may increase to as much as $8 per million British thermal units starting April 1, petroleum secretary Vivek Rae said today.
The Bank of New York Mellon India ADR Index rose 1.4 percent, poised for the highest closing level since June 19, as of 11:04 a.m. in New York. American depositary receipts of Wipro Ltd. added 2.1 percent to $7.34. Infosys Ltd. ADRs retreated 0.2 percent to $41.32, while Tata Motors Ltd. climbed 0.4 percent to $23.19.
The S&P BSE Sensex (SENSEX) soared 2.8 percent to 19,395.81 at the close in Mumbai, the sharpest gain since Dec. 21, 2011. Volume on the gauge was 53 percent more than the 30-day average. The gauge still fell 1.8 percent this month, ending two months of advance. The CNX Nifty Index on the National Stock Exchange of India rallied 2.8 percent to 5,842.20.
“Gas pricing is one of the biggest bullets the government has bitten,” Surya Narayan Nayak, an analyst at Networth Stock Broking Ltd., said by telephone from Mumbai today. “This will boost foreign investment in the energy sector and reduce our dependence on oil imports.”
Reliance Industries Ltd. (RIL), the owner of the world’s largest refining complex, surged 3.9 percent to 862.6 rupees, taking this week’s advance to 8.8 percent, the most on the Sensex. Oil & Natural Gas Corp. (ONGC) rallied 3.4 percent to 331.1 rupees. The two stocks have a 14 percent weighting in the Sensex.
Coal India Ltd. (COAL) jumped 5.3 percent, the most since Jan. 13, 2012, after the government said it will set up a regulator to settle disputes over the quality and quantity of supplies that have deprived thermal power plants of adequate fuel. NTPC Ltd. (NTPC), India’s largest electricity generator which has a dispute with Coal India, added 2.5 percent to 143.75 rupees.
Tata Power Co. (TPWR), India’s biggest non-state-owned generator, soared 6 percent to 86.3 rupees. Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, surged 6.9 percent to 174.25 rupees, halting an eight-day, 11 percent slide.
ICICI Bank Ltd. (ICICIBC), the biggest private lender, increased 3.9 percent to 1,070.75 rupees. HDFC Bank Ltd., (HDFCB) the most valuable lender, rose 3.6 percent to 669.5 rupees. State Bank of India, the nation’s biggest, climbed 2.2 percent to 1,953.8 rupees.
The Sensex has dropped 0.2 percent this year, reversing gains after reaching a two-year high May 17. The gauge trades at 12.9 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 9.8 times.
Bonds rallied the most in a year, paring a monthly drop, as the rupee’s rebound tempered concern a weaker currency will stoke inflation and reduce room for the central bank to cut interest rates.
The yield on the 8.15 percent notes due June 2022 slid 11 basis points, or 0.11 percentage point, to 7.63 percent. Still, the rate climbed 18 basis points this month, the most since the securities were issued in June 2012. Bonds also tracked gains in U.S. treasuries, according to Peerless Funds Management Co.
“The rupee’s rebound is a major positive today,” said Ganti N. Murthy, head of fixed income in Mumbai at Peerless Funds, which manages about 48.75 billion rupees ($822 million).
The Reserve Bank of India kept the benchmark rate at 7.25 percent June 17, ending three straight reductions, even after wholesale prices rose the least since 2009 in May. Inflation, economic growth and the balance of payments will guide policy, the authority said. The next review is on July 30.
The nation’s current-account deficit widened to a record 4.8 percent of gross domestic product in the fiscal year ended March 31, the RBI said in a statement yesterday. India needs more than $75 billion this year to fund the shortfall, Finance Minister Palaniappan Chidambaram estimates.
The one-year interest-rate swap, a derivative contract used to guard against swings in funding costs, dropped eight basis points to 7.49 percent, data compiled by Bloomberg show.
Overseas funds pulled $139 million from domestic shares yesterday, a 13th day of net sales and the longest stretch of outflows in at least five years, data compiled by Bloomberg show. Foreigners offloaded a net $1.76 billion of local shares this month through June 27, the biggest monthly outflow since August 2011, the data show. Global investors are set to snap six-months of rupee-debt purchases.
The Reserve Bank of India has sold dollars in the past two weeks to curb the rupee’s fall, traders said, asking not to be named as the information isn’t public. The RBI is also calling foreign banks to enquire about their open positions involving the rupee, although the lenders aren’t being asked to unwind the trades, two separate people said familiar with the matter said, asking not to be named as the information isn’t public.
Global funds seeking to use derivatives to shield their clients’ local investments against rupee swings must “produce a clear mandate” that states such intention from their account holders, the RBI said in a statement yesterday. Domestic banks acting on behalf of foreign funds looking to hedge currency risk must verify that the investors hold the underlying Indian securities, the central bank said.
The directive signals that the RBI is seeking to check speculation in the derivatives market, J. Moses Harding, executive vice president at IndusInd Bank Ltd. (IIB) in Mumbai, said in a phone interview today. The spread between the one-month onshore and offshore forward contracts narrowed today from a three-year high touched June 21.
Three-month onshore rupee forwards rose 1.7 percent to 60.25 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 1.6 percent to 60.51. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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