Rising markets push Re up by 61 paise

The rising flow of overseas portfolio investment in the stock markets and offloading of the greenback by exporters made the Indian rupee stronger against the US dollar for the second consecutive day this week.

Dealers said that, while there is a global rally in stock markets, many funds which missed the boom in the country earlier have made investments now. Besides capital flows, the growing strength of the rupee also reflects global fluctuations in the value of currencies.

According to Bloomberg data, the rupee opened at 49.61 to the US dollar. It moved between 49.27 and 49.52, before finally closing at 49.29, against its previous close of 49.90.

GAINING CURRENCY Currency per dollar
	May 4, 09	May 5, 09	% change
Indian rupee	49.91	49.30	1.23
Indonesian rupiah	10501.00	10435.00	0.63
Malaysian ringgit	3.53	3.51	0.60
Korean won	1272.45	1268.50	0.31
Japanese yen	98.80	98.66	0.14
Hong Kong dollar	7.75	7.74	0.13
Singapore dollar	1.47	1.47	0.13
Thai baht	35.13	35.10	0.09
Taiwan dollar	33.01	33.06	-0.16
Euro	1.33	1.34	-0.71
British pound	1.50	1.52	-0.90
Source : Bloomberg

Net purchases of Indian equity by foreign investors till date in May stood at $363 million, according to data from the Securities & Exchange Board of India. India’s benchmark BSE Sensitive Index (Sensex) has rebounded by almost 50 per cent from a three-year low reached on March 9. Even last month, overseas funds were net buyers on all but two of the 17 trading days.

“The positive sentiment in the stock market is helping the rupee strengthen, raising optimism about capital inflows,” said a currency dealer with a private bank.

Banks sold the greenback on behalf of exporters and foreign funds. The dollar’s early weakness against Asian currencies and exporters’ dollar sales also helped the rupee (to rise), dealers said.

Currency futures 
In the rupee currency futures market, a total of 580,789 contracts were traded on the NSE platform with volumes of Rs 2,881.45 crore.

The most actively traded currency future contract was May 27, 2009 with 543,396 contracts having a trading volume of Rs 2,695.359 crore. The last traded price for this contract was Rs 49.4750.

The forward premiums’ rates eased across the curve. The six-month forward premium was at 2.82 per cent. Against other currencies, the US dollar was trading at 1.3403 against the euro, 1.5118 against the pound and 98.89 against the yen.

The one-month rupee contract in the non-deliverable forward (NDF) market is currently being traded at Rs 49.35/49.45. Offshore contracts bet that the rupee will trade at 49.33 to the dollar in a month, compared with expectations for 49.98 yesterday.

Forwards are agreements in which assets are bought and sold at current prices for future delivery.

Non- deliverable contracts are settled in dollars rather than the local currency.

The rupee may extend gains on hope that inflows from foreign funds may persist. Dollar sales by exporters may also aid the rupee further. The Indian unit is also likely to take cues from the dollar’s movement against other global currencies, dealers said.

In recent years, the movement in the value of the Indian rupee against the US dollar and other currencies has been linked to portfolio flows.

In late 2007 and early 2008, rupee had touched a high of 39 against the US dollar as FIIs were pumping funds into the Indian stock markets.

But since the start of the last financial year, portfolio investors, plagued by problems in their home markets on account of the global financial crisis, had withdrawn from the market and this put pressure on the Indian rupee.

In early March, the currency touched an all-time low of 52.18 against the US dollar but has been gaining subsequently, though RBI has not intervened in the market.