Mumbai: The rupee rose for a second day on Monday on optimism that government measures to contain the damage from the alleged $1 billion (Rs4,860 crore) accounting fraud at Satyam Computer Services Ltd will help restore investor confidence.
The currency had the biggest two-day gain in a month after Prime Minister Manmohan Singh on 17 January termed the Satyam episode a blot on India’s corporate image and promised to unravel the fraud and punish the guilty. The government last week appointed new directors to Satyam. The Bombay Stock Exchange’s Sensex climbed a second day.
“The Satyam fallout isn’t as bad as feared and there’s little possibility of further significant capital outflows,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “The rupee is now taking a cue from the stock market and may gain this week.”
The rupee strengthened 0.3% to 48.65 per dollar. The currency, which gained 0.5% on 16 January, may rise as high as 48.50 this week, Arya said.
The Sensex on Monday gained 0.1%, adding to the 3.1% advance on 16 January. The index has slid 3.3% this month as global investors sold $407 million in local equities more than they bought, according to data released by the Securities and Exchange Board of India.
Satyam’s government-appointed board is seeking funds, looking for a new chief executive and improving revenue collection, the company said over the weekend.
The rupee is likely to strengthen 6% this quarter as slower economic growth and cheaper oil reduce the nation’s imports, helping narrow the current account deficit, Bank of America Corp. said.
“The currency will climb to 46 per dollar by 31 March and reach 45 towards the end of the year as demand for foreign exchange eases,” said Yeo Han Sia, strategist for the largest US bank by market value.
“The current account position will look a lot stronger this year because demand from the external sector will be much weaker,” Singapore-based Yeo said in an interview. “India remains more of a domestic-demand-driven economy and on that parameter the currency will tend to gain.”
India’s oil imports fell for a third month in November as a global recession helped push crude oil prices below $50 a barrel for the first time in more than three years.
Growth may slow to 7% in the year ending 31 March, foreign minister Pranab Mukherjee had said on 12 January, against 9%-plus in the previous three years.
The country’s current account deficit, which includes trade and investment flows, widened to a record $12.54 billion in the three months ended 30 September.
Crude oil last month reached a five-year low of $32.40 on the New York Mercantile Exchange and was at $35.82 on Monday.
Anoop Agrawal contributed to this story.