Dollar outflow concerns dent rupee

MARKET ROUND-UP

The rupee today ended off lows, as banks liquidated dollars accumulated early in the day after they noted good supply from exporters.

These inflows offset the dollar demand from importers and foreign funds. "There have been a lot of software and pharmaceutical companies coming in to sell dollars," said Rohan Lasrado, head of foreign exchange at HDFC Bank.

"The rupee had opened weak expecting stocks to open lower and that did happen. But banks were caught too long on the dollar and with exporters offering at 44.34-44.35, the rupee gained to 44.32," he said.

At 5 pm, the rupee was 44.2500 a dollar, weaker from 44.2050 on Tuesday, but up from a low of 44.3700 at open today.

Dollar sales by exporters spurred long liquidation by banks even as there was some caution that there could be dollar outflows from foreign funds as they book profits in equities.

Today, the Sensex lost close to 4 per cent tailing the steep fall in regional markets and the US indices on Tuesday.

Japan's Nikkei 225 average fell 3 per cent following huge losses on Wall Street Tuesday, which fell 2 per cent on concerns over increasing defaults in sub-prime mortgage lending and soft retail sales number.

Some dollar outflow on account of foreign fund buying amid the fall in stocks is likely, but these might not be large, dealers said. In the month to Mar 12, foreign funds net invested $448 mln in debt instruments, while they sold $44 mln in equities in the same period. Foreign funds had net bought $1.4 bln of equity in Indian markets last month.

Strong economic growth coupled with high domestic interest rates is expected to lure foreign investors back into India in a big way, dealers said.

Today, long dollar unwinding by banks below 44.32 rupees per $1 helped the rupee gain to 44.27-44.28 rupees per $1, dealers said.

"Surprisingly, there was not enough demand for dollars," said a dealer at a French bank. "And there were decent amount of inflows, which could have offset the demand."