Helped by surging Sensex and robust dollar inflows, rupee rises the most since Nov 4

Mumbai : Driven by strong capital inflows and rising appetite for Indian stocks, the rupee on Friday rallied 77 paise or 0.9% to close at a near 11- week high of 49.32 against the American dollar.

It had last touched 49.10/ 11 on November 4, 2011. The currency has appreciated 1.4% this week.

The local unit moved between 50.08/ 09 and 49.82 at the Interbank Foreign Exchange ( Forex) market, before settling at 49.31/ 32, or 77 paise higher.

The Sensex rose for a sixth straight session to a 11- week high as foreign investors brought Indian stocks. The Bombay Stock Exchanges Sensitive Index spurted by 156.80 points to 17,234, its highest closing level since November 9. The 50- share S& P CNX Nifty also regained 5,200 level to end at 5,208.05, higher by 49.75 points or 0.96%. Jagannadham Thunuguntla, Strategist and Head of Research, SMC Capital said, ” The rupee appreciation has taken place mainly because of FII inflows and also valuations have gone down since December. Also the CRR cut from RBI has increased the sentiment in the market.” The rupee is one of the best performers this year, having grown by 6.8%. The currency had fallen by 16% last year, making it one of the worst performers in Asia.

According to data released by SEBI, foreign institutional investors have pumped in a total nearly $ 1.79 bn in equities and $ 3.2 bn in debt markets till January 25 helping the local currency to breach the sub- 50- mark.

Another analyst from a leading brokerage firm said, ” This pullback was expected but below 50. It is also because of FII inflows which is about Rs. 6000 cr this time that was not seen earlier.” Forex dealers said sustained dollar selling by exporters amid weakness in the American currencys value overseas also boosted the rupee sentiment.

The rupee has seen heavy swings in the last month and a half. On December 15, the currency touched a high of 54.30 against the greenback before ending at 53.64.

On December 12, the currency gained a hefty 94 paise to end at 52.70.

To stem the rupee fall, RBI, had last month, imposed restrictions on forward trading in the local currency by FIIs and traders and also capped banksalt39 exposure to the forex market.

A depreciating rupee makes imports costlier and has a major impact on the countrys oil bill by putting pressure on retailers to hike prices of at least de- regulated fuels like petrol and the aviation turbine fuel. This adds to the inflationary pressures.

Rupee was also impacted by growing worries of slowdown in economic growth, widening fiscal deficit and current account deficit on domestic front, and lingering euro zone crisis which has strengthened the dollar in overseas markets.

The rally in Indian stocks was led by Reliance Industries and software exporter Infosys. RIL rose 3.7%, Infosys jumped 2.2%. Tata Steel added 3.1%, while state run Steel Authority of India Ltd rose almost 7%. Sector wise, the biggest gainers on the BSE were Energy ( 2.7%), metal ( 1.9%) and IT ( 1.7%).

However, the banking sector that has rallied smartly in the last few sessions, bucked the trend after earnings from most state- run lenders failed to lift sentiments due to higher provisions and weaker asset quality. HDFC Bank lost 1.2, while state- run State Bank of India fell 0.85%.

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