Rupee gains for second straight day

The Rupee extended its gains on Friday, as stocks continued to rally amid a global rebound in risky assets. The Indian currency also received a boost from strong economic prospects and rising interest rates, raising expectations of more capital inflows from foreign investors. Some dollar demand from the Haj pilgrimage committee for the annual religious pilgrimage prevented a sharp rise in the Rupee against the dollar, according to reports.



At 12:37 PM (IST), the partially-convertible Rupee was quoted at 46.7250 against the US dollar. It earlier touched a high of 46.7150 after opening at 46.78. It closed at 46.8650 yesterday.

The BSE Sensex was at17,805, up 154 points or 0.9% from the previous close. It earlier touched a high of17,855 after opening at the day's low of 17,667. On the other hand, the NSE Nifty was tradingup 43 points, or 0.8% at 5,339 after being as high as 5,356. It opened at the day's low of5,297. The IMF sees the Indian economy growing at 9.4% in 2010 as against 8.8% estimated in April. Monsoon was 2% above normal last week, the weather office said yesterday. Good thing for India is that its economic fundamentals are pretty solid. Inflation, which remains a big worry, is expected to moderate with a good monsoon.

Foreign capital inflows into Indian stock funds rose to an 11-week high in the week ended July 7, according to EPFR. The FIIs have poured in nearly US$7bn in Indian stocks so far this year after pumping in more than US$17bn last year. The Reserve Bank of India (RBI) has already raised its benchmark short-term rates three times this year and market experts expect the central bank to increase rates further at its policy meeting later this month as inflation remains in double digits.

Offshore forwards indicated that the Rupee will trade at 47.29 to the dollar in three months, compared with expectations of 47.44 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars. Meanwhile, Asian currencies rose, extending this week's gains, on a weak dollar and strong equity markets. The index of the US dollar against six majors was down. The euro held near two-month highs and the yen was under pressure as investors cut long positions to switch to high-yielding currencies on improving risk appetite.