The rupee and government bonds strengthened on Monday following exit polls predicting a decisive victory for the incumbent BJP-led National Democratic Alliance (NDA) in the general elections.
The 10-year benchmark government bond yield softened by 6 basis points to settle at 6.94 per cent on Monday, the lowest since April 7, 2022.
The rupee gave up some of the early gains after reaching a more-than-two-month high during the day. The local currency appreciated to Rs 82.96 against the US dollar in early trade, witnessing the highest intraday gains since December 15, 2023.
The rupee settled at Rs 83.15 per dollar on Monday, against Rs 83.47 per dollar on Friday.
The Reserve Bank of India (RBI) intervened in the foreign exchange market to mop up dollars to contain volatility in the exchange rate, said market participants.
“The RBI bought dollars at around Rs 83 per dollar mark. They could have bought around $200 million,” said Anindya Banerjee, vice president, currency derivatives and interest rate derivatives, Kotak Securities. “Tomorrow (Tuesday) the rupee is expected to appreciate more, and the RBI will have to intervene in the market,” he added.
Most exit polls predicted 350-400 seats for the NDA. Votes will be counted tomorrow.
“If they manage to secure more than 400 seats, ideally the rupee should be around 82.50 per dollar, but it is entirely on the RBI. However, there is a strong case for Rs 82.50 per dollar,” said Banerjee.
Bond market participants said that the number of seats should not affect the market. The expectation of a reduction in borrowing is expected to drive positive sentiment among traders.
“Overall, the market has shown strong demand and traders were able to push the price higher for another day. So that momentum should continue towards a stronger opening tomorrow (Tuesday),” said Naveen Singh, vice-president of ICICI Securities’ primary dealership. “As of now, there is an expectation that there can be some reduction in borrowing given the higher dividend from the RBI and some savings from last year because of a higher cash balance. So that will keep the optimism going up into the debt during this month,” he added.
Additionally, foreign inflows on the back of JP Morgan bond index inclusion are expected to have a favourable impact on the yields. In September 2023, JP Morgan had announced that it will include government papers, issued by the RBI under the Fully Accessible Route (FAR), in its widely tracked GBI-EM. The inclusion process will start on June 28 and will be phased over a 10-month period, with 1 per cent weight included each month until March 31, 2025. Indian bonds will have 10 per cent weight, similar to China.
First Published: Jun 03 2024 | 6:34 PM IST
