Re rises on talk of more foreign fund inflows

The rupee rose, rebounding from near a four-week low, on speculation that overseas investors will boost holdings of local assets as India’s economic recovery gathers pace. The currency strengthened after an index compiled by HSBC Holdings and Markit Economics showed on Monday that India’s manufacturing output rose the most in 17 months in January.

Exports rose 9.3% in December, after rising the previous month for the first time in 2009, according to government data released on Monday. The rupee also gained on speculation exporters converted their foreign-currency earnings. “The rupee is gaining support from the improving economic outlook,” said Vikas Babu, a currency trader at Andhra Bank. Also, “exporters are selling dollars because they want to hedge their receivables.”

The rupee rose 0.3% to 46.2325 per dollar at the close of trade on Tuesday. The currency, which advanced 5.8% in the past year, will extend its advance by 5.1% by December 31, according a median estimate. Offshore contracts indicate bets the rupee will trade at 46.28 to the dollar in a month, compared with expectations of 46.43 on Monday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

The Purchasing Managers’ Index compiled by HSBC and Markit stood at 57.6 last month, compared with 55.6 in December, according to a report released on Monday. That was the 10th monthly reading above 50 levels that reflect expansion.