The rupee that was trading in a narrow range till about 2.00 pm on Tuesday, appreciated sharply to 39.40 a dollar after the domestic equity markets witnessed a massive spurt in equities on buying by overseas investors.
Dealers said there was a sudden selling of dollars and the rupee that was trading at 39.53/54 for a while began to gain. The rupee had opened the day at 39.48/49 to the dollar.
David Wyss, chief economist at Standard & Poor?s told FE that the inflows are more than likely to continue. “It is up to the Reserve Bank of India to take a view which way they would like the currency to go,?? he said.
Foreign institutional investors (FIIs) were major buyers of equities after swapping their dollars for rupees. As a result of this, the BSE Sensitive index, Sensex, appreciated by 789 points, taking the benchmark index to a new high of 18, 280 points. Foreign exchange dealers interpreted the rupee rally to FIIs appetite for rupees to invest in Indian stocks.
The rupee at its close of 39.41/42 was at its 9 ? year peak. Since the beginning of the current year, the appreciation has been to the tune of over 12%. There was no intervention by the RBI, dealers said.
??If the dollar inflows continue this week, the rupee could appreciate to 39.20 levels,?? said a treasury head a foreign bank.
The excess liquidity in the market, however, did not have any bearing on ten year yields that remained static at 7.9 levels.
??The country continues to attract investments despite the uncertainty on the political front,?? he added.
Dealers do not rule out any adverse market reactions as they now feel that the economic reforms will continue at the current pace, perhaps with some blips, in case the country goes to polls to elect a new government.
Exports earnings, however, are likely to be hit due to the appreciating currency.
Commerce Secretary Gopal K Pillai on Monday said that merchandise exports were likely to fall below the $160 billion target.
