Re gains on investment speculation

The rupee rose on speculation that overseas funds will increase investments in stocks, betting the government will introduce policies to promote economic growth at its annual budget announcement next month.

"The rupee continues to have a strengthening bias due to capital inflows," said V Ravi Kumar, director of treasury at Infrastructure Development Finance Co. in Mumbai.

"Portfolio inflows should increase ahead of the federal budget, which has historically been the venue for India's major policy initiatives." The rupee rose 0.3 per cent to 44.3763 against the dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg.

The currency advanced in the five months through December, its longest winning streak since 2004. It gained 1.7 per cent in 2006. Kumar expects the rupee to rise to 43.90 by March 31, when the current financial year ends.

Purchases of Indian equities by global investors have averaged $181 million a day this month, compared with average daily sales of $40 million last month. Such investment totaled $8 billion in 2006.

Union Minister for Finance P Chidambaram next month will detail the annual budget for the fiscal year starting April 1.

The Centre, which hasn't fixed a date for the presentation, may announce measures to allow more overseas investment in sectors such as retailing and telecommunications.

The rupee's gains were limited by speculation that companies will take advantage of the rally to buy dollars to pay for imports. A stronger rupee reduces the cost of buying goods overseas.

"Imports are increasing at a higher rate than exports, and this doesn't help the rupee, said Sanjay Lodha, senior investment adviser at Pictet Asia Pte in Hong Kong.

"India imports more than 70 per cent of the oil it needs and that impacts the value of the rupee to a pretty high level."

Oil imports increased 31 per cent in the quarter ended September 30, contributing to a wider current-account gap, the central bank said on December 29.

The current-account deficit increased to $6.9 billion in the three months through September from $4.8 billion in the previous quarter.