Indian shares set a new high for the third consecutive trading day on Monday, driven by strong inflows of foreign capital that also boosted the rupee, but the local currency ended flat as the central bank again intervened. Foreign funds have been flowing into the soaring stock market, supporting the currency, but the Reserve Bank of India (RBI) has been buying dollars to curb the rupee's gains since it hit a five-year of 43.30 per dollar in early February.
Analysts say the RBI is keen to check the rise of the rupee, which is allowed to float in an unofficial target band of 3-5 percent against the currencies of India's top five trading partners.
A local holiday in the financial hub of Bombay will keep rupee trading very thin on Tuesday, although currency markets in other Indian cities will be open.
The Mumbai Stock Exchange and the National Stock Exchange will remain open for normal business operations on Tuesday.
On Monday, the benchmark 30-share Mumbai index closed 0.43 percent higher at 6,878.98 points, having topped 6,900 for the first time earlier in the day.
"It is going to remain healthy for the next three to four days. It is the foreign funds and the domestic funds who have raised a lot of money, that is driving the market," said Rahul Jain at brokerage Prabhudas Lilladeher's equity sales unit.
Foreign funds have so far this year bought a net $2.5 billion worth of shares, compared with a record $8.5 billion for all of 2004. Local mutual funds are thought to have raised 50 billion rupees ($1.15 billion) in the past two months.
Indian bonds hit a one-week high for the second day in a row, but were dragged by signs of less liquidity in the banking system and ahead of Tuesday's holiday, which will shut debt markets.
Extending Saturday's slide, the 10-year benchmark bond yield ended at a one-week low of 6.5274 on Monday.
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