Re gains as indices surge to 8-mth high

MARKET ROUND-UP

The rupee gained as the benchmark stock index gained the most in eight months.

The Bombay Stock Exchange's Sensex rose 3.7 per cent following a slump that saw it lose as much as 15 per cent from a record close reached on February 8, according to data compiled by Bloomberg. A rebound in stocks may lure global funds back to Indian equities, after they sold a net $820.9 million of shares in the seven days through March 6.

"The rupee has been swinging with the stock market lately and a recovery could bring back the flows into the market,'' said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai.

The currency advanced 0.3 per cent to 44.36 against the dollar from 44.4963 yesterday. It may trade between 44.20 and 44.70 this month, Bhatt said.

Equity purchases by overseas investors rose to a record net $10.7 billion in 2005 followed by $8 billion last year, according to the Securities and Exchange Board of India, the market regulator.

The rupee also gained on speculation corporate tax payments due next week will leave banks with fewer funds, prompting them to sell dollars to raise cash.

Companies may pay as much as Rs 40,000 crore ($9 billion) in the final quarter of the financial year that ends on March 31, more than the Rs 28,000 crore they may have paid in December, according to a Bloomberg News survey of bond traders.

"With so much money going out of the system, not many people will stay long on the dollar,'' said Bhatt. "I expect the rupee to strengthen a bit this month.''

The central bank also drained Rs 8,500 crore from the banking system this week through the sale of securities. The Central government plans to sell Rs 7,000 crore of bonds tomorrow as part of its annual borrowing programme.

Sales of dollars by exporters after the rupee touched a 10-week low on March 5 also helped the rupee gain.

Exporters such as Infosys Technologies, India's second-biggest software maker, benefit from a weaker rupee when they convert their global earnings. A stronger rupee helps importers, including Indian Oil Corp, the country's biggest refiner, cut the cost of shipments from overseas.

"The rupee is going to trade in a range,'' said Anil Kumar Varma, a currency trader at state-owned Canara Bank in Mumbai.

"Importers aren't going to see better levels to buy dollars, while exporters will step in as the rupee weakens.''

The rupee had dropped as much as 1.5 per cent since touching a one-year intraday high of 44.025 on February 9. Speculation the central bank stepped up purchases of dollars to protect Indian exporters also weighed on the currency.

Data provided by the central bank showed foreign-exchange reserves rose $13 billion in the three weeks through February 23.

The Reserve Bank of India bought $5 billion in all of November and December.

The currency fell in the forwards market. Investors who want to sell dollars a year from now for rupees receive 3.02 per cent more than the current exchange rate, compared with 2.91 per cent yesterday.