Re recovers ground on FII inflows

The rupee today bounced back from a 13-month low to close at Rs 45.77/ 78 per dollar helped by intervention by the Reserve Bank of India (RBI).

In early trades, the rupee breached the Rs 46 mark to test Rs 46.05 level, last seen in September 2004. Dollar demand by corporates and supply shortage had led to the rupee extending losses from yesterday's 1-year low of Rs 45.79.

Strong foreign institutional investor (FII) inflows into the local equity markets subsequently helped the central bank's efforts to prop the rupee. RBI, which normally operates through state-owned banks, had stepped in and increased supply of dollars, helping the rupee to recover.

"There were increased FII inflows into the equity market. These coupled with some unwinding of long dollar positions and selling by exporters saw the rupee recoup losses," said a dealer at a private sector bank.

Foreign institutional investors (FIIs) have bought stocks worth more than $200 million in three trading sessions this month. This has taken their net investment in local stocks to nearly $7.9 billion since January.

Earlier, these funds sold shares worth more than $800 million in October, leading to a sharp fall in the Bombay Stock Exchange (BSE) index, which weighed on the rupee. Foreign fund inflows have aided the rupee to sustain around 45 levels despite costlier oil, which has caused the trade deficit to widen.

Even the resurgence of dollar against major currencies saw rupee plumetting to 13-month low on Monday.