Yield softens, rupee gains as exit polls boost inflow hopes

India’s currency and bonds rallied Monday in anticipation that foreign investors would buy more local assets, with Sunday’s exit polls published after the last round of balloting pointing to a comfortable electoral victory for the ruling National Democratic Alliance (NDA).

Bond yields dipped Monday pushing prices up and the rupee gained up to 1 per cent . Votes will be counted Thursday.

“There may be overseas money waiting on the sidelines, and that could flow in if the exit poll results come true,” said Ashhish Vaidya, deputy head of markets at DBS Bank. “On an immediate basis, forward premiums fell on expectations of the rupee appreciating against the dollar."

The premium fell 5-10 basis points across maturities Monday.

“In the long term, the currency and debt markets will get back to basics, considering the macro and global factors,” he said.

The rupee Monday strengthened 1.2 per cent to hit an intra-day high of 69.36 a dollar. It shed some of the gains later to close at 69.74 versus 70.22 last Friday.

"If the exit polls turn out to be correct and NDA forms the next government, the economy will benefit from continuity in policy measures,” said MS Gopikrishnan, independent market expert. “If it wins with the kind of majority indicated by the exit polls, we can also expect acceleration in the reforms agenda.”

The benchmark bond yield dipped seven basis points, pushing prices up. It closed at 7.29 per cent against 7.36 per cent last Friday.

Some of the crucial factors shaping market directions include the fiscal math, government borrowing, and the inclusion of India’s sovereign bonds in global bond indices.

“Banking, aided by the non-banking finance sector, should mainly drive the country’s growth,” said Jayesh Mehta, managing director and country treasurer at Bank of America.

Foreign portfolio investors sold a net of ?5,573 crore worth of domestic securities in May, showed data from the National Securities Depository. However, overseas funds have largely been buyers of Indian assets earlier in the year.