Rupee gains on dollar fall; shares boost

Rupee gains on dollar fall; shares boost

Mumbai: The Indian rupee rose on Monday, pulling back from its biggest fall in a month-and-half in the previous session as gains in domestic shares fuelled hopes for more inflows while a weak dollar also helped sentiment.

The partially convertible rupee closed at 44.35/36 per dollar, half a% stronger than 44.59/60 at close on Friday when it dropped 0.65%, in its biggest one-day fall since early September.

“The dollar-rupee is bouncing end-to-end from sell zone of 44.55-44.65 and buy zone of 44.25-44.35," said J. Moses Harding, head of global markets at IndusInd Bank in Mumbai.

“Two factors are dominating now - general dollar weakness ahead of quantitative easing 2 and Coal India IPO outflows in the first week of November. These two forces are good enough to keep the rupee in a tight range within 44.25-44.65".

The dollar dropped broadly on Monday, hitting a 15-year low versus the yen, as a Group of 20 agreement to shun competitive currency devaluations was taken as a green light to resume dollar-selling by investors.

The index of the dollar against six major currencies was down 0.8% when the rupee market closed.

“The euro was mainly being watched. Oil bids were there but there was also counter selling pressure from the currency futures market," said Abhijit Ray, a foreign exchange dealer with state-run Allahabad Bank in Mumbai.

Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market with their demand tending to peak at the end of each month when they are required to make payments.

“When Coal India outflows happen, its possible for the rupee to drop to 45," Allahabad Bank’s Ray said.

Coal India’s $3.5 billion IPO, the country’s largest, was more than 15 times subscribed last week, giving the government power to price the issue at the top of its range and building momentum for other state offers.

The world’s largest coal miner would begin to refund excess subscriptions for the IPO, which had an institutional order book of about $27 billion powered by foreign funds, by late October or early November and most traders expect the rupee to weaken towards 45 at that time.

In anticipation, the rupee had snapped a seven-week rally last week and dropped 1.1%, which was its biggest weekly loss in over two months.

“Over all, post Coal India IPO outflows, rupee would be back to its trend for test/break of 44.20 for move into 43.85 ahead of 43.50," IndusInd’s Harding said.

But some analysts and traders expect foreign funds to stay invested in the Indian market ahead of other large share sales in coming months.

State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are among the firms waiting in the wings with large share sales.

Sustained foreign portfolio investments and firm world equities helped Indian shares notch a 0.7% gain, led by financials and metal makers.

Foreign investments in shares now stand at a record $24.4 billion, compared with $17.5 billion last year.

One-month offshore non-deliverable forward contracts were quoted at 44.62, 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 closed at 44.3725, 44.38 and 44.3550 respectively, with the total traded volume on the three exchanges at a low $5.7 billion.