Surging Sensex lifts rupee to 16-month high

MARKET ROUND-UP

Rupee closed at the highest in 16 months, as the benchmark stock index rose to a record, stoking speculation better earnings at companies will lure more investment from abroad.

The rupee ended the day at 44.1075 against the dollar, the strongest since September 30, 2005, according to data compiled by Bloomberg. It closed at 44.1113 on February 2.

Net income of 21 out of the 30 companies that make the BSE's Sensex beat the median estimate of Bloomberg surveys of analysts for the quarter ended December 2006.

The local currency is the fourth-best performer in Asia in the past six months, as the $854 billion economy is poised to expand 9 per cent in the year ending March 31, following an average growth of 8.3 per cent in the previous three financial years.

"The India growth story is expected to draw more investments from abroad than before as the economy opens up,'' said L V Prasad, chief currency trader at IndusInd Bank in Mumbai. "In the near term, dollar supply will remain more than the demand.''

Overseas investors bought more local equities than they sold for eight days through January 25, the longest streak in almost three months, according to information available on the website of the Securities and Exchange Board of India.

The country needs more investments in roads, ports and other infrastructure to sustain economic growth of 9 per cent, Finance Minister Palaniappan Chidambaram said today.

"India's investment needs are enormous,'' Chidambaram said in New Delhi. "What is driving growth is investments and to maintain this growth, we need more investments in infrastructure.''

The central bank last week raised its growth forecast to as much as 9 per cent for this financial year, from an estimate of about 8 per cent.

The rupee's gains were held by speculation the central bank will sell the currency after its six-month rally through January, the longest winning streak in more than three years.

That may prompt the Reserve Bank of India to sell the currency, said S T P Venugopal, chief currency trader at state-owned Central Bank of India.

"The central bank will be concerned about the rupee's gains, considering the importance of exports to the economy,'' Mumbai-based Venugopal said. "The fall in quarterly exports is also weighing against the rupee. Already, we are seeing the trade gap adding pressure on the rupee.''

A stronger rupee makes goods and services more expensive for overseas buyers, stunting export growth and widening the current-account deficit.

That gap, a key measure watched by traders to determine a currency's value, widened to $11.7 billion in the six months through September 30 from $7.2 billion a year earlier, according to data provided by the central bank.