At 10:24 a.m., the partially convertible rupee was trading at 39.86/87 per dollar, off an early peak of 39.80 and slightly higher than Friday's close of 39.895/905, its strongest close since Feb. 28.
"The main reason that we're seeing the climb this morning is the inflows," said a trader with a private bank.
"Today, everybody, all the corporates, want to get their money in before the deadline."
Inflows of overseas capital are a key driver of the rupee and have risen of late ahead of the end of the 2007/08 fiscal year on Monday. Foreigners bought nearly $800 million of shares in the five session to Thursday, the most recent data available.
"Plus, call money is very tight, and so no one wants to go long on dollars," the trader said.
"However, stocks are down, so I don't think we'll be seeing much appreciation from current levels," he said.
Call money rates were quoting at 9.00/9.20 percent. When cash supplies are adequate, they hover around 6 percent.
India's benchmark share index was down more than 2 percent in morning trade on Monday.
Inflows of foreign funds were likely to taper off once the new fiscal year started on April 1, analysts said, in line with the trend so far this year.
Overseas investors have sold a net $3 billion of stocks this year. In 2007, foreigners bought a record $17.4 billion in stocks, helping the rupee climb more than 12 percent.
Banks will be auditing their books on Tuesday and the currency market is expected to see low volumes.
"Tomorrow, there will be basically no trade, and everybody will be adding up their accounts," the trader said.