Rupee to appreciate further

Strong portfolio capital flows into stock markets and direct investments will continue to push the rupee up against the dollar in 2010.

The rupee opened 2009 at 48.77 to a dollar. It continued to depreciate until the middle of March. Then, it began to strengthen till the close of the year.

A clear mandate in favour of the United Progressive Alliance in May increased the attractiveness of the Indian market.

HSBC India co-head, global markets, Hitendra Dave, said the rupee would show a small and gradual appreciation. It may witness up to 5 per cent appreciation during the course of the year. At present, it trades at 46.70 against the dollar.

Capital flows – direct as well as foreign institutional investments – will be much bigger. While global movement of the dollar will have an impact on immediate trading, overall capital flows will influence the long-term value.

Rohini Malkani, chief economist with Citigroup, said a combination of external factors such as global liquidity, a weak dollar and a higher risk appetite, coupled with higher growth and interest rates set the environment for continuation of dollar inflows.

The US financial group estimates that the rupee may see some appreciation and rule around Rs 44 to a dollar by March.

While capital flows would give a strong push to see the rupee gain against international currencies, rising inflation could exert some adverse impact.

BA Prabhakar, executive director with Bank of India, concedes that rising prices (inflation) have the potential of knocking out value from the Indian currency. But flow of overseas portfolio money – direct investments and capital market investments – is expected to contain any downside effect of inflation. In his view, the rupee could appreciate slightly to test 46 to a dollar in early months.

Rupa Rege Nitsure, chief economist with Bank of Baroda, said the rupee is game play of pace at which portfolio investments come in and global crude oil prices. Rupee may depreciate slightly by March 2010, perhaps on effect of inflation. Indian currency could trade between 47.0 to 47.50 to a dollar by March 2010.