India’s Rupee May Strengthen on Signs Risk Aversion Is Easing

By Anil Varma

March 18 (Bloomberg) -- India’s rupee may strengthen as gains in global stocks and commodities prices damp risk aversion, spurring demand for emerging-market assets.

The currency has rebounded 1.4 percent from an all-time low reached on March 3 as stock exchange data showed purchases of Indian equities by foreign funds exceeded sales last week for the first time in a month. The MSCI Asia-Pacific Index of regional shares rose for a fourth day, while the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials climbed 2.6 percent this week.

“Money is coming back into markets worldwide as investors are turning slightly more optimistic about a global economic recovery,” said Sanjay Arya, Mumbai-based treasurer at state- owned Bank of Maharashtra. “The rupee could benefit as we see signs of an improvement in capital inflows.”

The rupee traded at 51.445 per dollar as of 10:21 a.m. in Mumbai, little changed from yesterday, according to data compiled by Bloomberg. It rose as high as 51.32 earlier. The currency may reach 51.20 in the coming days, Arya said.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, has gained almost 3.3 percent this week, adding to a 5.2 percent advance in the five days through March 13.

Net Buyers

Funds based abroad bought a net $26 million of Indian stocks last week, compared with net sales of $543 million in the previous five-day period, according to data released by the Securities and Exchange Board of India, the nation’s capital markets regulator.

Offshore contracts indicate traders bet the rupee will trade at 51.76 to the dollar in a month, compared with expectations for a rate of 51.75 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.

Implied volatility on one-month dollar-rupee options measured 11.75 percent, the lowest in a month, Bloomberg data show. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of option prices.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.