Rupee gains ground, hits a high of 40.45

Rupee rose to the highest in more than a month on speculation that banks will buy the currency to boost cash before corporate clients pay tax due this week.

The currency climbed for a sixth day as companies prepare to pay the second installment of taxes by September 15 for the current financial year that started April 1. It also advanced on optimism that a share sale by the country's biggest power transmission company will attract investments from abroad.

"The rupee gained as some banks sold dollars to avoid a cash crunch,'' said JP Singh, a currency trader at the state-owned Union Bank of India in Mumbai. "The rupee is also gaining support from IPO-related inflows.''

The rupee rose 0.3 per cent to 40.4425 a dollar as of the 5 pm close in Mumbai, according to data compiled by Bloomberg. That is the highest since August 7.

The rupee's 9.4 per cent rally this year is the biggest among Asian currencies. It may rise as high as 40.40 in the coming days, Singh said.

Companies may pay as much as Rs 35,000 crore ($8.65 billion) in taxes this week, according to the median estimate in a Bloomberg News survey.

New Delhi-based Power Grid Corp, seeking to raise as much as Rs 2,980 crore, on September 10 began its offer to sell as many as 573.9 million shares.

The state-run company received applications for 9.24 times the number of shares on offer as of 4 pm in Mumbai today, according to the National Stock Exchange. The sale will close tomorrow.

Overseas investors have increased purchases of local equities, according to data from the Securities & Exchange Board of India. Their net investment in stocks almost doubled to $682 million in the five days through September 7.

Rupee gains were limited by speculation that refiners will buy more dollars to pay for costlier crude oil imports, said Sudarshan Bhatt, chief currency trader at the state-owned Corporation Bank in Mumbai.

Crude oil traded near a record in New York amid concern additional crude from OPEC members will arrive too late for peak demand in the Northern Hemisphere winter.

The rupee's advance was also limited by speculation the central bank will buy dollars to curb a rally in the currency that threatens exports, Corporation Bank's Bhatt said.

Average monthly growth in exports fell to 18.4 per cent during the first four months of the current fiscal year from 25.1 per cent in the year-ago period.

The Reserve Bank of India bought foreign exchange worth a total $26.7 billion from the currency market during the six months through June, according to the latest data published on the bank's website.

"Interventions have been by and large successful in reducing volatility in the foreign-exchange market,'' the bank said in its annual report on August 30.