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Breather for rupee, stocks but mood uneasy

RBI's forex swap window for oil firms helps currency gain 3.25%; Sensex up 2.25%

BS Reporter  |  Mumbai 

The rupee on Thursday posted its highest single-day gain in about 26 years, as the Reserve Bank of India’s (RBI’s) move the previous day to open a special window for oil companies to meet their daily dollar needs came to the rescue of the battered currency. RBI followed it up with some aggressive dollar selling in late trading, helping the rupee snap its three-day losing streak.

The rupee on Thursday ended at 66.60 a dollar, up 3.2 per cent over the previous day’s all-time closing low of 68.83.

Stock markets, too, cheered the rebound in the rupee. Traders scrambled to cover their short positions ahead of the expiry of the August series futures & options contracts.

The BSE Sensex rose 404.89 points, or 2.25 per cent from the previous close, to end the day at 18,401.04. The NSE Nifty gained 124.05 points, or 2.35 per cent, to close at 5,409.05.

However, market participants are still reluctant to conclude that RBI’s latest move has set the tone for the rupee’s recovery. They are watching the currency’s moves in the foreign non-deliverable forward (NDF) markets, where bearish bets on it dominate. At the time of going to press on Thursday, the one-month offshore NDF was trading weaker at 67.82 a dollar, compared with Wednesday’s 67.79.

“We need to watch how the rupee behaves in the NDF market for at least a couple of days before gauging the impact of RBI’s move. But, it is certainly not a game changer for the rupee,” said Tirthankar Patnaik, strategist & chief economist, Religare Capital He expects stock to remain volatile in the near term.

Selling by foreign institutional investors (FIIs) on Thursday was the least in the past nine trading sessions. According to provisional data, they net-sold stocks worth Rs 248 crore on Thursday, helping RBI in its attempts to curb the rupee’s fall. Domestic institutions, including mutual funds and insurers, too, were net-sellers to the tune of Rs 75 crore.

Thursday’s gain for the rupee was the biggest since October 22, 1987, when it had risen 7.44 per cent to 12.06 a dollar.

The Indian currency on Thursday touched an intra-day high of 66.51. RBI’s Wednesday announcement to open a special window for oil marketing companies came in handy, as there had been heavy month-end dollar demand from importers.

“It is indeed a near-term relief after RBI pushed out oil marketing companies’ dollar demand from cash market. The foreign exchange swap facility shifts the cash demand to a forward date in anticipation of relief by then,” said J Moses Harding, executive director & chief business officer, Lakshmi Vilas Bank.

“This was the first day since yesterday’s announcement. We need to see for one more day if the rupee is strengthening,” said Abhishek Goenka, founder & CEO, India Forex Advisors. “In the near term, we are feeling there could be some corrections in the market due to which the rupee may strengthen to 65 or 66 a dollar. But, in the medium term, I am not sure if the weakness has peaked out,” he said.

Bank of America-Merrill Lynch believes RBI will have to take far more proactive steps to rebuild forex reserves to make up for not buying forex between the second half of 2009 and first half of 2011.

“It is for this reason that we believe in the urgency of launching a scheme to attract chunky forex inflows where the rupee risk would be borne by RBI or the fisc to comfort investor confidence. NRI or sovereign bonds or reviving FCNRA deposits could help,” said BofA-ML India Economist Indranil Sen Gupta.

Tracking the strengthening in the rupee, government bond yields fell.

The yield on the 10-year benchmark bond 7.16 per cent 2023 ended at 8.77 per cent, compared with 8.96 per cent on Wednesday.

In the equity market, among blue-chip shares, HDFC surged 6.5 per cent and ITC 2.5 per cent.

Among state-owned oil companies, IOC rose 0.9 per cent and BPCL 1.2 per cent, while HPCL lost 0.5 per cent after rising as much as 3.4 per cent earlier.

ONGC gained 2.1 per cent on expectations of a hike in diesel prices after Parliament’s monsoon session ends on September 6. Software exporters like TCS and HCL rose to record highs on improving US business prospects.

First Published: Fri, August 30 2013. 00:58 IST