Mumbai: The rupee ended at its highest in nearly a month on Tuesday, boosted by a strong rise in local stocks and an increase in inflows of foreign capital, though possible central bank intervention capped further gains.
The partially convertible rupee ended at 40.11/12 per dollar on Tuesday, its strongest close since 29 February, according to Reuters data. It ended at 40.27/28 per dollar on Monday.
“We’ve seen a strong recovery of the rupee, predominantly sparked by strong equity market performance, which has been on the back of strong performance in the US,” said the head of trading at a private bank, who did not wish to be identified.
India’s benchmark index, the Sensex, soared 6% on Tuesday, mirroring a rise in other Asian markets and on Wall Street after heartening news about the US housing market.
“Also it’s the end of the fiscal year, when you see a lot of FDI coming in because it needs to beat the year-end deadline,” the trader said, referring to foreign direct investment. India’s fiscal year ends on 31 March.
Inflows of capital from foreign investors into local stocks are a key driver of the rupee and have picked up in the past several trading sessions as investors’ anxieties about US credit markets have eased.
Foreigners bought $133 million (Rs533 crore) of shares on 19 March, the most recent data available. But after pouring a record $17.4 billion into local equities in 2007, pushing the rupee up against the dollar by over 12%, foreigners have sold a net $3.7 billion in stocks so far this year, causing the rupee to fall by about 2%.
The recent increase in capital inflows is unlikely to continue, the trader said. “Once we see the end of the fiscal year, we’ll have some slowdown on the FDI.”
Dealers said the Reserve Bank of India bought dollars to stem the rupee’s rise. “Today, we’ve seen a bit of what looks like intervention-buying by the central bank... From that I would presume that any further appreciation is likely to be slow,” the trader said.