Business | Economy
Rupee posts strong gains as Indian shares rise 6%
India's rupee rose by the most in more than a decade and stocks and bonds soared on speculation the government will allow more overseas investment in the financial industry after surviving a confidence vote in parliament.
- Bloomberg
- Published: 00:03 July 24, 2008
Mumbai: India's rupee rose by the most in more than a decade and stocks and bonds soared on speculation the government will allow more overseas investment in the financial industry after surviving a confidence vote in parliament.
The currency strengthened 1.6 per cent to 42.075 a dollar at 5pm in Mumbai. The Sensex gained 5.9 per cent to 14,942.28, the most since March 25 and the biggest fluctuation of global benchmark indexes tracked by Bloomberg News. ICICI Bank and HDFC Bank led lenders higher.
Prime Minister Manmohan Singh's victory gives him a mandate to raise foreign investment in insurers and lift curbs on voting rights in banks that had been held up by his former communist allies, according to Citigroup and Goldman Sachs.
The win extends the tenure of a government that has delivered record economic growth and lifted investment to an all-time high.
"It is going to bring a lot of confidence to local as well as overseas investors," said Parthasarthi Mukherjee, treasurer of Axis Bank , in Mumbai. "Asset prices will rise as the negative element that was priced in will get reversed; reforms will be re-initiated and that process would be smoother and quicker this time."
The government has been seeking to raise the foreign investment ceiling for insurers to 49 per cent from 26 per cent since 2006.
The rupee has advanced 8.2 per cent against the dollar since the Congress Party proposed Manmohan Singh as its candidate for prime minister on May 18, 2004. The currency has gained in 10 of the 17 quarters after Singh took office, and risen in three of the five years through 2008.
The rupee yesterday gained the most since January 19, 1998, to the strongest since May 12.
The currency will advance as Singh revamps economic policies after winning the vote, Goldman analysts Tushar Poddar and Pranjul Bhandari said.
Bills to open pension management to overseas investors and remove a 10 per cent cap on the voting rights of foreign investors in non-state banks may also be revived.
"Reforms that appear non-controversial include those in pensions, divestments, banking and finance-related amendments" may be debated in parliament, Citigroup analyst Rohini Malkani wrote in a note to clients. The vote is positive in part because of "the absence of the Left, which was a stumbling block on the reform front since the government came to power in 2004."
Equities surge
Under Singh, the stock market, Asia's fifth biggest, has jumped almost fivefold and surpassed $1 trillion in value last year.
The Sensitive Index has climbed 19 per cent since July 16, its biggest five-day winning run since April 2, 1992, on speculation that Singh's government would serve out its five-year term ending in May.
The banking index tracking 17 lenders gained the most since May 18, 2004, today. State Bank of India, the nation's largest, rose 10 per cent to Rs1,543.30. ICICI advanced 12 per cent to Rs738.70. HDFC Bank added 9.4 per cent to Rs1,204.60. The cost of default protection on ICICI Bank and State Bank declined after the vote.
Five-year credit-default swaps on ICICI dropped 20 basis points to 345 and contracts on State Bank fell the same amount to 230, according to JPMorgan Chase prices. A decrease in the price indicates improving investor perceptions of credit quality.
Nuclear power equipment makers rallied on speculation Singh's victory will increase orders for turbines and generators used in reactors.
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