Steady inflows likely to keep rupee strong

The rupee may continue to strengthen on optimism that overseas funds will invest more in local stocks and bonds. The global outlook also favours the dollar to weaken, thus, adding an impetus to the rupee and currencies of other emerging market economies.

The rupee, which gained 0.1 per cent last week, rose to as high as 44.12 per dollar, before purchases of greenbacks by oil companies pushed it to 44.44 per dollar by the close of trading on Friday.

“One could see some action from the Reserve Bank of India if the rupee breaches the 44 per dollar level,” said an economist, adding, “This level could get tested soon.”

As the outlook on Indian economy remains positive and companies may report better earnings, global investors could find Indian stocks attractive, reckon analysts. Foreign institutional investors have invested $21.4 billion in equities and $10.5 billion in bonds this year, according to data from the Securities and Exchange Board of India. Investments in stocks in 2009 were $17.5 billion.

Also, the non-farm payroll (NFP) data in the US was lower than expectations, which could weaken the dollar further. The non-farm payroll (NFP) data is designed to reflect the number of jobs added or lost in the economy, excluding the agriculture sector.

Still, any rise in prices of oil globally could increase India’s import bill and push the rupee towards some depreciation. A large current account deficit might also curb the local currency’s gains, a dealer said.