India’s (SENSEX) benchmark stock index surged to a record and the rupee climbed to a four-month high after the nation’s main opposition party won the state polls.
The S&P BSE Sensex rose 1.5 percent to 21,311.03 at 12:03 p.m. in Mumbai and the currency touched 60.8475 per dollar, the strongest level since Aug. 12. Ten-year bonds ended a seven-day losing run. ICICI Bank soared 4.6 percent, sending a gauge of lenders to its highest level since June.
Victories by the Bharatiya Janata Party in areas holding about a sixth of the nation’s 1.2 billion people would give it momentum to end the ruling Congress party’s decade-long rule in polls due by May and install Narendra Modi as prime minister. Gujarat, Modi’s home state, recorded annual economic growth of 10 percent, lured investments by companies from Ford Motor Co. to the Tata Group and raised power-generation capacity more than fivefold since he became chief minister in 2001.
“Markets are giving a thumbs-up to the poll results,” Nirmal Jain, chairman of Carlyle Group LP-backed India Infoline Ltd., told Bloomberg TV India today. “Investors are looking at the probability of a new government coming in with a decisive mandate in next year’s elections. Foreign inflows will increase and the rupee will appreciate.”
The wins will boost the Sensex by as much as 6 percent by year-end, according to the average of 10 estimates compiled by Bloomberg last week. The gauge has risen 9.8 percent this year, the top performer among the four largest emerging markets, as growing exports boosted earnings and stimulus from the Federal Reserve spurred foreigners to pour almost $18 billion into the nation’s $1.1 trillion stock market. That’s the biggest inflow in Asia after Japan, data compiled by Bloomberg show.
“Foreigners will see a fresh story in India, something quite dramatic in terms of potential change, and would want to follow it up with capital,” Gary Dugan, chief investment officer for Asia and the Middle East at Coutts & Co., said on Bloomberg TV India today.
The BJP wrested power from Prime Minister Manmohan Singh’s Congress party in both the western state of Rajasthan and the capital New Delhi, where the upstart Aam Aadmi Party is a close second. The BJP also secured another term in Madhya Pradesh and Chhattisgarh, according to the Election Commission of India.
The state polls are the final test for the nation’s two major parties before the national vote.
The rupee rose 0.4 percent to 61.1525 and the yield on the 8.83 percent bonds due November 2023 fell one basis point, or 0.01 percentage point, to 8.85 percent. The rate climbed 16 basis points in the past seven sessions.
“Risks seem to be skewed that the rupee will break 61 and stay there as state election results are seen as a positive,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “India is at an important pivot point.”
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 30 basis points, or 0.30 percentage point, to 11.85 percent.
Three-month offshore non-deliverable rupee forwards rose 0.3 percent to 62.39 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.-Bloomberg
