Rupee recovers on strong equity markets, capital inflow hopes

Rupee recovers on strong equity markets, capital inflow hopes
The Financial Express, April 7, 2009, Page 2

Mahalakshmi Hariharan, Mumbai

Backed by stronger equity markets and expectations of increased capital inflows, the rupee has started showing some signs of improvement against the dollar.

On Monday, the rupee closed at 50.04/05 against the dollar, after touching an intra-day high of 49.88, its strongest since late February, stronger than Thursday’s close of 50.33/35. However, demand for dollar from oil refiners pared early gains.

Markets were shut on Friday and will be shut again on Tuesday owing to a pious festival. Dealers said that an upswing in the stock markets have raised optimism on continued capital inflows into the equity markets. “We don’t believe there would be a very high level of appreciation of the rupee against the dollar. In the next few days, we think rupee would touch 49.8 levels against the dollar, but may not go below this level. It may not breach 50.50 levels against the dollar,” said RVS Sridhar, head of markets at Axis Bank.

Amar Singh, analyst with Angel Broking said that for the week, resistance is seen at 50.90/51.74 whereas support is seen at 49.65/49.22. “We expect the rupee to reverse its gains this week, if it is unable to breach the 49.70 mark on the downside,” he noted.

“One month non deliverable forwards (NDF) are trading at premium to spot market, indicating that gains in rupee can be limited. Traders will keep an eye on RBI’s pre-credit policy meeting on 8th April. Overall the rupee is likely to remain range bound in this holiday shortened week,” added Singh. On Monday, the Indian benchmark Sensex ended higher by 186.04 points or 1.80% while Asian indices also finished higher between 0.48% and 3.11%.

The Sensex has gained nearly 967 points or 10.10% in four sessions of gains, mainly giving support to the rupee.

Global crude oil was trading near $53 a barrel in Asian trade on Monday.

“In case equities keep showing a positive trend, rupee will keep strengthening against the dollar,” noted Sridhar. This could evidently lead to more capital inflows and in turn help the rupee. Foreigners have sold a net $1.4 bln of shares so far this year, after dumping more than $13 bln in 2008.