Rupee at 16-month high as banks sell dollars

MARKET ROUND-UP

Rupee held at a 16-month high after paring gains in the day on speculation state-owned banks sold the currency on behalf of the central bank to curb the advance.

The currency was overvalued by as much as 9.5 per cent on a trade-weighted basis, the most in almost a year, according to an index maintained by JPMorgan Chase & Co.

It rounded off six months of gains through January, partly helped by equity purchases by overseas investors. A stronger rupee makes Indian goods and services more expensive for customers abroad, slowing export growth.

"Speculation of central bank intervention is strong since the rupee has risen to crucial levels,'' said Rohan Lasrado, a trader at HDFC Bank Ltd in Mumbai.

"We have to see whether the central bank lets the rupee advance or absorbs the constantly big dollar supplies coming from capital inflows.''

The local currency gained as much as 0.1 per cent to 44.06 against the dollar, before ending the day at 44.102 in Mumbai, according to data compiled by the agency. That is the highest since September 30, 2005. The country's central bank won't comment on daily operations, spokeswoman Alpana Killawala said.

Expanding exports is key to narrowing the current-account deficit, which widened to $11.7 billion in the six months through September 30, from $7.2 billion a year earlier.

Commerce Minister Kamal Nath wants exports to grow 25 per cent to $126 billion in the financial year ending March 31, and to $165 billion by March 2010.

The latest data provided by the Securities & Exchange Board of India showed net purchases of equities by global funds were the most in a month as Indian companies reported better earnings in the quarter ended December 31.

Twenty-one of 30 companies that comprise the benchmark stock index beat analysts' estimates. The Bombay Stock Exchange Sensitive Index, or Sensex, yesterday reached a record.

"There are heavy capital flows coming in from abroad, sustaining pressure on the rupee to appreciate,'' said K Dhanasekar, a trader at state-owned Canara Bank in Mumbai.

"We're also seeing foreign direct investment picking up, besides the regular portfolio flows.''

Global funds on February 2 bought $146.2 million more Indian shares than they sold, the most since January 2, according to data available on the website of the Securities & Exchange Board of India. Foreign investors purchased a net $8 billion last year, following a record $10.7 billion in 2005.

A pace of economic growth unprecedented since the country's independence in 1947 is also luring companies such as Wal-Mart Stores Inc, the world's largest retailer, and Carrefour SA, Europe's biggest retailer into the world's second-most populous nation.