By Nimesh Vora
MUMBAI – The Indian rupee is expected to rally at the open on Monday after exit polls indicated a third term for Prime Minister Narendra Modi.
Non-deliverable forwards indicate the rupee will open at 83.10-83.12 to the U.S. dollar, compared with 83.4625 in the previous session.
The “big down move” at the open for the dollar/rupee will “likely run into good buying interest”, a forex trader at a bank said.
“Only once the actual results confirm what the exit polls are forecasting do I think that a dip below 83.00 is possible.”
Weekend exit polls projected the alliance led by Modi’s Bharatiya Janata Party (BJP) to increase its 303 seats in the 543-member lower house of Parliament and possibly get a two-thirds majority.
Exit polls in India have a patchy record, often getting the outcome wrong. The actual results will be announced on Tuesday.
“If the exit polls are accurate … it would leave the BJP with a very strong mandate from which to continue enacting growth-enhancing structural reforms,” Capital Economics said in a note.
Goldman Sachs said that “political continuity would contribute to a stable macro-economic environment and continuing reforms.”
The rupee dropped 0.2% on Friday, in the lead-up to the exit polls.
On Friday, we witnessed “sizable” hedging from importers and dollar short exits, another fx trader said.
“These positions will need to be rebuilt and is good in a way (for the rupee),” he said.
Following the election results on Tuesday, the focus will shift to the Reserve Bank of India’s policy decision and U.S. non-farm payrolls, both due Friday.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.18; onshore one-month forward premium at 7 paisa
** GIFT Nifty up 3%
** Dollar index down at 104.54
** Brent crude futures up 0.6% at $81.6 per barrel
** Ten-year U.S. note yield at 4.49%
** As per NSDL data, foreign investors sold a net $134.5 million worth of Indian shares on May 30
** NSDL data shows foreign investors bought a net $169.2 million worth of Indian bonds on May 30
(Reporting by Nimesh Vora; Editing by Savio D’Souza)
