Re stays at 9-year high

MONEY MARKET ROUND-UP

The rupee held at the highest in nine years on speculation increased company earnings will attract global funds to the nation's stocks.

The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, climbed to an intraday record after Tata Consultancy Services Ltd., India's biggest software exporter, yesterday reported higher-than-expected earnings in the quarter to June 30.

Analysts had expected the rupee's biggest quarterly gain in more than three decades to hurt profits. The rupee, up 9.7 percent this year, is Asia's second-best performer.

"The companies have been hedging more and protecting themselves from a stronger rupee,'' said R.K. Gurumurthy, chief currency trader at ING Vysya Bank Ltd. in Mumbai. ``The currency is likely to touch the old highs we've seen recently as the sentiment broadly is favorable.''

The rupee closed at 40.365 against the dollar versus yesterday's 40.37, according to data compiled by Bloomberg. Should it break 40.285, the nine- year intraday high touched on May 28, it may strengthen to 39.80, Gurumurthy said.

Mumbai-based Tata Consultancy reported a 37 per cent jump in net profit for the quarter, more than the median 26 per cent gain predicted by nine analysts in a Bloomberg survey, as it billed clients more for its software and services, and cut wages to help temper the effect of a stronger currency.

Software Exports
India's software exports, which the National Association of Software and Service Companies expects to double to $60 billion by the year ending March 31, 2010, may help offset a widening merchandise trade deficit. Capital flows and software exports may prevent India's balance of payments from shrinking, according to ICICI Bank Ltd.

Global funds bought $575.5 million more Indian shares than they sold on July 13, the most in two weeks, according to data provided by the Securities & Exchange Board of India.

The rupee's advance was limited by speculation the central bank is selling it to keep gains from hurting smaller exporters.

"Given the fact that more people are in the goods sector, the human aspects of exchange-rate management should not be lost sight of,'' central bank Deputy Governor Rakesh Mohan said in a speech delivered at Banque de France on June 14.

India eased interest rates and increased the tax refund limit for small and medium sized exporters on July 12 to cushion them from currency gains.

The relief to textile, leather, handicraft and other exporters will cost the federal government Rs 13 billion ($322 million), said Duvvuri Subbarao, a top bureaucrat in the finance ministry.

The implied volatility of one-month Indian rupee options fell to a three-month low of 6.05 per cent, Bloomberg data show.

Implied volatility, a measure traders use to gauge price swings, increases as demand for options rises. Traders quote implied volatility as part of pricing options. It touched 9.5 per cent on April 25, the highest since at least May 2003.