Rupee slips after early surge on exit polls; eyes on election results

The Indian rupee pared early gains after jumping to a more-than-two-month high in early trading. This was due to exit poll projections that Indian Prime Minister Narendra Modi’s party and alliance would secure a third term with a sizeable mandate, boosting investor confidence.

As of 10.05 a.m., the rupee was at 83.08 against the U.S. dollar, up 0.5% from its close of 83.4625 in the previous session.

The currency touched an intraday high of 82.9575, its highest since March 19.

A foreign exchange salesperson at a private bank said that broad-based interbank dollar sales lifted the rupee in early trades, but “importers have barged in,” to buy dollars, hurdling the rupee’s gains.

“A big gap down move (on USD/INR) coupled with the anticipation of RBI intervention (to buy dollars) is keeping offers away.”

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.

But investors are likely to wait for the election results, due on June 04, as exit polls in India have a patchy record and often get the outcome wrong, analysts said.

“We expect risk assets to rally, India govt bond yields to grind lower, and INR to strengthen in the immediate aftermath, notwithstanding RBI’s likely hand in intervening to cap INR strength,” MUFG Bank said in a Monday note.

Benchmark Indian equity indices, the BSE Sensex and Nifty 50 jumped to record highs and were last quoted up about 2.5% each.

“Till final results are announced we may see appreciation in the rupee to about 82.80-90,” Apurva Swarup, vice president at Shinhan Bank India, said.

The dollar index changed slightly to 104.6, while Asian currencies were mixed. Dollar-rupee forward premiums edged lower, with the 1-year implied yield down 1 basis point to 1.64%.