Rupee rebounds from 6-wk low on investment flows

The rupee rose the most in more than a week, rebounding from a six-week low, after foreign funds raised holdings of local stocks and bonds to record levels.

The currency strengthened 0.4% to 47.175 per dollar at the close of trade on Wednesday, paring this week’s loss to 0.9%. It touched 47.385 on Tuesday, the weakest level since June 7.

The currency snapped a three-day slide as data from the Securities and Exchange Board of India showed foreign investment in equity and fixed-income securities touched all-time highs of $81.5 billion and $15.4 billion, respectively, in the past week.

The rupee also advanced as the BSE Sensex climbed 0.6%, the best gain since July 12. “The rupee is showing some recovery because capital inflows have remained consistently positive, helped by India’s better economic fundamentals,” said Roy Paul, deputy general manager at Federal Bank in Mumbai.

Offshore forward contracts indicated the rupee will trade at 47.84 to the dollar in three months, compared with expectations for a rate of 47.99 on Tuesday.

India’s economy may expand 9.4% in the year ending March 31, the fastest pace since 2007, the International Monetary Fund said this month. That will help domestic companies boost earnings by as much as 25% this year, according to Mirae Asset Global Investment.

The rupee will strengthen in the next 18 months as the global economy stabilises and the Asian nation’s growth continues, according to Wells Fargo & Co.

“Once global investor sentiment becomes more stable, India’s robust growth profile and rising interest rates should attract foreign capital flows, putting upward pressure on the currency,” Vassili Serebriakov, a currency strategist at Wells Fargo in New York, wrote in a research note on Tuesday.

The rupee will strengthen to 43 per dollar in 18 months, Serebriakov wrote.