Rupee Rises for a Second Day as Global Funds Buy Indian Bonds
India’s rupee rose for a second day as the dollar weakened and global funds resumed purchases of local bonds after the government sought to clear uncertainties over a retrospective tax on capital gains.
Overseas funds bought a net $130 million of local-currency notes on April 24, the latest figures show, as tax authorities clarified that investors can use the Double Taxation Avoidance treaties signed between India and their countries of residence to reject demands for a 20 percent tax on past capital gains. That’s the biggest single-day purchase since March 23 and ended five days of withdrawals. The levy has been scrapped in the financial year that began April 1.
The rupee climbed 0.3 percent to 63.3150 a dollar as of 11:08 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency touched 63.7675 on Monday, its lowest level since Dec. 30, following a 1.9 percent retreat last week that was its biggest since August 2013. Government bonds advanced on Tuesday.
“The clarity that has come on the tax issue for foreigners is contributing to the positive sentiment,” said Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial Services Ltd. in Mumbai. The weakness in the dollar is also supporting the rupee, he said.
A gauge of dollar strength completed a four-day slide on Monday as a set of disappointing U.S. economic data caused speculation the Federal Reserve will delay its first interest-rate increase since 2006.
The rupee remains Morgan Stanley’s top pick in Asia and is expected to outperform peers within emerging markets, Kritika Kashyap, a currency analyst in Hong Kong, wrote in a note Tuesday.
The yield on the 8.4 percent government notes due July 2024 fell one basis point, or 0.01 percentage point, to 7.77 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. It has climbed three basis points this month.