The rupee appreciated against the US dollar on a strong flow of overseas portfolio investments in the surging equity markets. Dealers said that the Indian currency was going strong since morning, driven by foreign institutional investors (FIIs) who have stepped up investments in Indian paper.
While the rupee could move up further, the demand from importers halted its upward march on Monday. According to Bloomberg data, the rupee opened at 49.62 to a dollar. It rose to touch 49.52 in intra-day trading, before finally closing at 49.90 against its previous close of 50.09.
Foreign investors bought $1.3 billion more Indian shares than they sold in April, the biggest net monthly purchases since December 2007, according to data from the Securities and Exchange Board of India. The FII flows into debt markets stood at $490 million in April.
A State Bank of India official said that money is flowing into the Indian equity markets, which are attracting interest from overseas investors again. Besides capital flows, global fluctuations in currency values will also have a bearing on the rupee.
But on Monday, in addition to the demand from importers, a persistent demand from oil companies also limited the rupee’s rise. Banks also covered their short dollar positions after the euro gave up early gains, dealers said. As the euro rose earlier On Monday, banks went heavily short on the dollar. Some banks also purchased the greenback to meet gold-related demand, the dealers added.
On the outlook for rupee, the SBI official said that the US dollar may turn weak, reflecting the health of the US economy, which is mired by recession and a huge deficit, against other global currencies. This would give further strength to the rupee, he added.
The market is also factoring in signs that the global recession may be drawing to an end. This is also impacting the currency values in international markets. Investor sentiment is improving and that is reflected in equity prices as well as the local currency.
There is optimism that local assets will continue to rise in the near term, according to a currency dealer with a public sector bank.
Additionally, the dollar’s weakness globally pushed the dollar/rupee rate in non-deliverable forward (NDF) market lower, which also helped the rupee to rise, dealers said.
“Lower NDF rates gave rise to reverse arbitrage earlier On Monday,” said a dealer with a private bank. On Monday, the one-month NDF rate fell to 49.7000 rupees, compared with 50.2500 rupees on Wednesday, and there was around 15 paise arbitrage between local and offshore markets.
Forward premium also rises
Forward dollar/rupee premiums also ended slightly up because importers bought forward dollars, dealers said. The benchmark one-year forward premium ended at 2.33 per cent compared with 2.29 per cent.
In the currency future market, a total of 412,387 contracts were traded On Monday on the NSE platform with volumes of Rs 2,054.574 crore. The most actively traded currency future contract was May 27 with 392,596 contracts having a trading volume of Rs 1,955.59 crore. The last traded price for this contract was Rs 49.9925.
