The rupee may be reeling at around 50 a dollar but take heart.

According to a Crisil Research report, the Indian currency may strengthen to 45-46 a dollar by March 2012 on increased investments by FIIs, triggered by return in risk appetite for investment in emerging markets.

The report attributed the recent steep depreciation in the rupee to the rising demand for dollars from Indian companies and the reduced supply of the greenback due to weak foreign institutional investor (FII) inflows.

Crisil Research has revised the outlook on the rupee to 45-46 per dollar by March 2012 from the earlier 43-44 per dollar.

The rupee is expected to pull back to 45-46 as developed economies, which will witness a slowdown, will avoid another recession. This will lead to a pick up in FII inflows towards early 2012 as the risk appetite for investing in emerging markets returns, said the report.

India Inc to face repayment pressures

Indian companies account for nearly 90 per cent of India's overall short-term debt repayments of $88 billion to be made in 2011-12.

Crisil said that while trade credit repayments and corporate short-term bonds account for nearly $62.2 billion, repayment of foreign currency convertible bonds and external commercial borrowings and related interest payments add up to nearly $16 billion.

“Corporate debt repayment may continue to exert downward pressure on the rupee through the rest of the fiscal as Indian companies pay back their foreign debt. Considering the prevailing weakness in the equity markets, it would be difficult to swap FCCB repayments with equity or roll them over,” the report said.

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