The Hindu Business Line : Rupee ends flat; touches intra-day high of 40.54

"Decent amount of FDI inflows and steady FII inflows have helped the rupee to gain against the greenback. There are large public issues hitting the domestic capital market, which will attract overseas interest," said Mr K. Harihar, Head-Treasury, Development Credit Bank. Till now in 2007, FIIs have invested over $2.9 billion in the equity and $293 million in the debt markets.

The rupee opened strong at around 40.65/70, moved in the range of 40.53-40.60 but finally dipped sharply by around 25 paise to close at 40.87. The rupee closed at 40.85/87 on Friday.

Heavy dollar buying

Dealers said there was heavy dollar buying from corporates which pushed down the rupee. "The rupee also tracked the movement of overseas currencies against the dollar. Dollar weakened against the yen on weak non-farm payroll data," said the dealer.

The rupee's appreciation is certainly expected to hurt exporters even more.

According to a report by Credit Suisse, software and service exporters are the losers from the rupee gains. Recently, TCS admitted to hedging its dollar earnings for $1 billion at 43.50.

"Some pharmaceutical majors could also face profit pressure due to weak pricing power on exports. Hotels and transportation companies too have adverse exposures but have much better pricing power to weather the appreciation," said the report.

Many metal companies are benefiting from the impact of a weak dollar on commodity prices, but the genuine direct beneficiaries would be media, engineering and certain consumer companies, the report added.

Forward Premia

The six-month forward premia is at 5.30 per cent (5.61 per cent) and 12-month premia is at 4.50 per cent (4.71 per cent).

Dealers feel rupee is on an appreciating mode and is expected to go up further. Standard Chartered Bank said it has lowered year-end rupee forecast to 42.20 from 43.80 against the US dollar.

The bank further said the rupee has been on an appreciating path since just before the fiscal year-end, breaching one psychological level after another.

"Indeed, during that period, it has appreciated by around eight per cent. Previously, the Reserve Bank of India has not tolerated the exchange rate stronger than present levels going back to 1993-94. This rupee strength has been largely due to the relative absence of the RBI from the forex market despite the rise in rupee. The currency was allowed to trade more in sync with demand and supply conditions," said a press release by the bank.

Mr Sundeep Bhandari, Managing Director and Regional Head - Global Markets, South Asia, Standard Chartered Bank, said, "The RBI appears to be tolerating a much greater degree of rupee strength than we had previously expected. This is indicated by its overvaluation on a real effective exchange rate (REER) basis. Our own proprietary SCB INR REER indicates a multiyear 'overvaluation' of around 17 per cent. This comes from assuming that the base year of FY93-94 is where the RBI sees fair value for the rupee. "