Rupee seen strong owing to inflows

OUTLOOK/CURRENCY

The rupee is seen hovering in the 45.50-45.60 per dollar range this week amid thin trades.

With foreign investors betting on the Indian economy growing at more than seven per cent next year, institutional investors will continue to pour funds into the domestic stock market.

This will see the central bank absorb dollars from the market in order to cap rupee's gains so that the exporters are not hit.

Month-end demand will not be that pronounced. Short-covering on Monday could see the rupee weaken a tad.

However, robust inflows will see the Indian unit strengthen a tad during the course of the week. If the rupee touches the 45.60 per dollar, exporters will sell their receivables.

With most of the Western markets closed for Christmas and New Year, trading in the domestic forex will be lacklustre through the week.

The rupee last Friday ended at its three-week closing low of 45.58/59 per dollar. It depreciated by 0.16 per cent during the week.

Despite the rupee's downward correction, outlook for the Indian unit remains upbeat on the back of rising foreign fund inflows and export remittances.

The market expects the rupee to appreciate to 45.00-45.25 per dollar by the end of the current financial year. The FII inflows into the stock and debt market have been robust in 2003.

This is underscored by the fact their net investments, at $6.38 billion, was the highest made in a single year since foreign funds were allowed to invest a decade ago. Thanks to the buoyant stock market foreign fund inflows are expected to gather pace in the New Year.

Though the rupee lost seven paise against the US currency last week, it has appreciated more than 5.2 per cent against the dollar in 2003. Left to the market the rupee would have appreciated more this year.

The Indian unit's gains have been capped due to the central bank's surrogate intervention to protect the export competitiveness of Indian goods and services.

India's foreign exchange reserves crossed the $100 billion historic landmark on December 19, touching $100.049 billion. During the current calendar year alone, $30 billion has been added to the forex kitty.

Forward premiums
Forward premiums will rule steady in the coming week. As cash dollar shortage is not anticipated forwards are unlikely to tread in the discount territory. The six months annualised forward premium is seen hovering in the 0.10-0.20 per cent band this week.