Rupee gains, but equity flows watched

Rupee gains, but equity flows watched

Mumbai: The rupee strengthened on Thursday buoyed by the dollar’s losses versus major currencies overseas, but profit-taking in domestic shares after a surge could limit the Indian unit’s gains.

By 10:50am, the partially convertible rupee was at Rs44.34/35 per dollar, 0.3% stronger than Rs44.49/50 at close on Wednesday, when it had hit 44.25 in early deals -- its strongest since 15 April.

“The rupee is stuck within the 44.20-44.70 range and more or less tracking the EUR/USD and stock market moves," said J. Moses Harding, head of global markets at IndusInd Bank.

High carry cost of long dollars following a rise in domestic interest rates and inflows toward Coal India’s up to $3 billion IPO expected later this month should underpin the rupee, he said.

Harding said the rupee could breach 44.20 and head to sub-44.00 in the near term.

Emerging economies should consider steps to contain fund flows that could cause currency rallies and asset bubbles, the World Bank chief was quoted as saying, but the International Monetary Fund called such actions “undesirable". [ID:nSGE69601R]

India’s central bank is considering measures to deal with an influx of foreign fund flows, a Reserve Bank of India (RBI) deputy governor had said on Tuesday. [ID:nSGE69408B]

“There will be a bit of volatility on move into 43.50-44.00 window. The RBI may check this rapid rupee rise and guide it back to 45.00. Over all, market participants should be prepared for two-way volatility within 43.50-45.00 in the near term. For today, I would stick to 44.25-44.50 range and break either-way not expected to sustain," Harding said.

The IMF also raised India’s 2010 growth forecast to 9.7% from 9.4% earlier and dealers said this could boost foreign fund investments in the country.

Indian shares were choppy in early trade as investors locked in profits after a sharp rally.

Foreign funds have bought a record $20.3 billion of Indian equities so far this year, with more than a quarter of that having come since the start of September.

The dollar was mired near a 15-year low versus the Japanese yen and an eight-month low against the euro on Thursday on the spectre of more money-printing by the US Federal Reserve as early as next month.

One-month offshore non-deliverable forward contracts were quoted at Rs44.47, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange were all at 44.4750, with the total traded volume on the three exchanges at about $1.6 billion.