Re rally on for 3rd week

MARKET ROUND-UP

Rupee advanced a third week on speculation global funds will invest in local equities to benefit from record economic growth.

The rupee gained as overseas fund managers bought more shares in domestic companies than they sold for eight straight days through January 25, the longest streak in almost three months.

That helped the benchmark stock index rise to a record today.

"I am still bullish on the rupee,'' said Rohan Lasrado, a currency trader at HDFC Bank in Mumbai. "I expect the dollar supply to continue since nobody wants to miss on the India growth story.''

The rupee rose 0.3 per cent to 44.1113 against the dollar as of the 5 pm close in Mumbai from 44.2513 a week ago, according to data compiled by Bloomberg.

Asia's fourth-largest economy grew 9 per cent in the year through March 31, 2006, the fastest pace since independence in 1947. The central bank earlier this week raised its growth forecast to as much as 9 per cent for this financial year from an earlier estimate of about 8 per cent.

Any gains in rupee may be moderated by speculation the central bank, acting through state-owned banks, will sell the currency. A stronger rupee makes India's exports more expensive abroad.

"There is always a concern for the central bank and a section of the market when the rupee rises in a rather sustained manner,'' said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. "The speculation of the central bank intervening will help the rupee shed gains.''

The currency has gained for the past six months, its best run since October 2003.

The rupee may not rise above 44.05 today, Babu said.

"The exchange rate policy in the recent years has been guided by monitoring and management of exchange rates with flexibility, without the fixed target or a pre-announced target or a band, coupled with the ability to intervene, if and when necessary,'' Reserve Bank of India Governor Yaga Venugopal Reddy said in his third-quarter review of monetary policy on January 31.

The local currency will rise 2.5 per cent in 2007 to 43 per dollar, the highest in more than eight years, as the world's second-fastest growing major economy attracts direct investments from abroad, said HSBC Holdings.

Foreign direct investment will be more than the funds flowing into stocks and help the rupee add to gains, said Richard Yetsenga, HSBC's Hong Kong-based currency strategist.

Demand for the rupee will prevent the country's current-account deficit from widening, he said.

"Even if we see a significant correction in stocks, we doubt that the rupee will react as poorly as many think,'' said Yetsenga in an interview yesterday. "The deficit is funded by a much broader range of capital flows than just equity.''