Good foreign fund inflow makes rupee best performer among EM currencies

The rupee is the bestperforming emerging-market currency in the past one month due to an increase in overseas fund inflow ahead of this summer’s national balloting the Street expects the incumbent combine would win.

The local unit has gained 4.1 per cent during the period beating its nearest rival, the Russian Ruble, by a wide margin, Bloomberg data showed. The Ruble rose about 3 per cent in the same period. The Chinese Renminbi, ranked fifth on the leader-board, climbed 0.8 per cent against the US dollar.

“A bout of expected overseas fund inflow has triggered the current rupee rally,” said Ashish Vaidya, head of markets for India at Singapore’s DBS Bank. “A stable dollar is also triggering ‘total returns’ trades toward Asia. Within the emerging markets, India was earlier battered badly. Hence, it is now finding favour.”

Total returns refer to interest incomes on debt securities adjusted for inflation, which remained soft in India.The rupee strengthened 0.82 per cent, or 57 paisa, to close at 68.53 to a dollar on Monday. During the day’s trading, it rose to 68.44, the strongest level since August 2 last year. “A softer interest rate regime with an accommodative monetary policy aided international investor sentiment,” said Vaidya.

Foreign portfolio investors have net invested Rs 26,793 crore ($4 billion) in domestic securities this month, show data from the National Securities Depository.

“The rupee gain can be attributed to many factors including seasonality, improved balance of trade and positive foreign fund inflows, primarily into Indian equities,” said Bhaskar Panda, executive vice-president, treasury advisory group, HDFC Bank. “If offshore inflow remains uninterrupted, you can expect another 1-2 per cent rise in the rupee’s value in the next few weeks.” ArcelorMittal, the new owner of Essar Steel, will also bring in Rs 42,000-crore, or $6 billion, to repay lenders. Besides, another $2-4 billion flows are expected from other corporate transactions, dealers said. “Besides, fundamental factors such as stable oil prices and easy central bank polices across the globe are also adding to positive sentiments,” Panda said.

Beginning March, global crude oil prices have been range-bound between $67 and $68 per barrel, with no wild swings. During the same period, the dollar index, which measures the unit against other major currencies, fell 1.3 per cent.

“Ahead of the financial year-end, many exporters are selling dollars short-term to protect their receivables,” said KN Dey, founder of foreign exchange advisory firm United Financial Consultant. “We could see some long positions on rupee being built on the offshore forwards market, boosting the currency at home in the spot market.”