Mumbai: The rupee rose on Friday, tracking its Asian peers and as the dollar weakened against majors, but a drop in local stocks kept the gains limited.
The partially convertible rupee closed at 46.53/54 per dollar, off a high of 46.49 but 0.2% stronger than its previous close of 46.64/65.
Industrial production index (IIP) rose 10.3% in October, meeting a Reuters forecast, and September’s annual growth was revised to 9.6% from 9.1, indicating Asia’s third-largest economy was picking up steam.
“The rupee should appreciate vis-a-vis the dollar as more inflows are expected as IIP data was robust,” said Ashutosh Khajuria, head of treasury at IDBI Bank.
“We have been having a strong number for two months continuously and this will be a positive for the rupee.”
However, the stock market fell as participants had been expecting a big surprise on industrial output. It turned negative after the data was released around noon and ended down 0.4%.
Lower stocks trigger concerns about foreign portfolio inflows, which are a key driver for the rupee.
Foreign buying of a net $16 billion worth of stocks up to the start of December has helped the rupee rise 12.2% from its record low of 52.2 in early March.
“Our near-term targets remain at 45.50 for year-end and 45 for March-end,” said Priyanka Chakravarty, forex strategist at Standard Chartered Bank.
“As for the IIP, the key is that the positive growth momentum remains in place underscoring India’s positive economic outlook. We expect the trajectory to remain choppy on the uncertainties surrounding the financial market,” she said.
Dealers also said that muted demand for dollars from exporters has supported the rupee at 46.50-levels.
“Exporters were expected to jump in a big way and that has not happened,” said IDBI Bank’s Khajuria.
The index of the dollar against six majors was negative most of Friday, supporting the rupee and other Asian currencies.
One-month offshore non-deliverable forward contracts were quoted at 46.52/62, not far from onshore spot closing rate.
In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 46.61 and 46.6125 respectively, with the total traded volume at a moderate $4 billion.