India Rupee Gains Most in 3 Weeks on Speculation Funds Will Buy

By Anil Varma and Anoop Agrawal

Nov. 26 (Bloomberg) -- India's rupee rose the most in three weeks on speculation global funds will increase purchases of Asian stocks after China cut its key lending rate by the most in 11 years to spur growth.

The rupee climbed to the highest since Nov. 14 as India's benchmark share index completed the week's best advance after the People's Bank of China cut its lending rate by 1.08 percentage points to 5.58 percent. The rupee also climbed on speculation NTT DoCoMo Inc., Japan's biggest mobile-phone operator, brought in part of the $2.7 billion it agreed this month to pay for 26 percent of India's Tata Teleservices Ltd.

``The rupee has gained as flows seem to be coming in from some hedge funds, possibly for equity purchases,'' said Paresh Nayar, chief foreign-exchange and bond trader at Development Credit Bank Ltd. in Mumbai. ``Some of the Tata Teleservices money is also said to be coming in.''

The rupee advanced 1.1 percent to 49.435 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. That is the biggest gain since Nov. 4.

The Bombay Stock Exchange's Sensitive Index, or Sensex, climbed 3.8 percent. The index is trading near the cheapest levels relative to earnings in at least five years. The price-to- earnings valuation of the Sensex has fallen to 9 percent, near the lowest since Bloomberg started compiling such data in 2003, from a record high of 31.1 reached in January.

Promoting Growth

China's central bank also lowered the reserve requirement for the biggest banks to 16 percent from 17 percent, effective Dec. 5. The requirement for smaller banks will fall to 14 percent from 16 percent. The cuts are aimed ``at ensuring sufficient liquidity in the banking system, and to promote steady loan growth,'' the bank said in a statement.

Templeton Asset Management Ltd., Aberdeen Asset Management Ltd. and F&C Management Ltd. are buying Indian stocks as strategists predict a rebound in the rupee, after it fell more than 20 percent this year. The median forecast of 17 strategists in a Bloomberg survey is for the currency to strengthen to 48.5 by the end of June.

``Investors are speculating the global financial crisis is nearing an end and some stability will return to the financial markets soon,'' said Ravindra Babu, a foreign-exchange trader at state-owned Andhra Bank in Mumbai. ``The rupee will continue its rising streak in the near term.''

Offshore forward contracts showed traders scaled back bets for how far the rupee will weaken in the next month. Non- deliverable contracts showed an implied rate of 49.78 rupees to the dollar, versus 50.5 yesterday.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. Indian rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Anoop Agrawal in Mumbai at 9038 or aagrawal8@bloomberg.net.