Stability was achieved on two fronts this week. While the dissolution of the Lok Sabha set the stage for another general elections, the rupee bounced back after falling to its lowest ever against the dollar at Rs 39.25. On Friday, the rupee rose by 34 paise after the Reserve Bank of India intervened and closed at Rs 38.91 against the dollar. The news about Mahanagar Telephone Nigam's GDR also brought some cheer to the forex markets.The State Bank of India entered the market to buy dollars towards the second half of the day which saw the rupee lose ground and touch a low of 38.90 players attributed the rupee recovery to the RBI package (including a hike in CRR) and the success of the Global Depository Receipt (GDR) issue of Mahanagar Telephone Nigam Limited (MTNL). The RBI decision to raise the interest rate at its fixed rate repo to 6.5 per cent from 5.0 per cent also aided the recovery.The rupee has rebounded because importers were now spacing their dollar purchases and were not in a hurry to cover their positions while exporters were releasing their dollar earnings. The current rally was also due to some operators adopting a wait-and-watch attitude before putting fresh pressure on the rupee, dealers said.Finance Minister P Chidambaram tried to calm the industry and said, "It appears that conditions are returning to near normalcy now that the political uncertainty has ended." Stating that market supply and demand must determine the value of the rupee, Chidambaram warned that action would be taken against speculators. "We should not allow volatility or excessive speculation in the markets," he said.MTNL's silver liningWhile the rupee rode back on the news of the MTNL GDR, it appeared that the Government was trying hard to prove that issues had been a success. While the GDR issue did get oversubscribed, the Government neglected the issue by not claiming that the price was lower than what could have been achieved.While a price of Rs 235 per share was announced for the 60 million shares, experts say that a higher price of Rs 250 to Rs 255 was attainable.The Government decided to go ahead with the issue as withdrawing it after the road shows would have hurt the future prospects of MTNL. The issue is slated to garner $360 million, reducing the Government holding in the telecom giant from the present level of 66 per cent to 56 per cent. The price was arrived at after the core group met and deliberated on the detailed reports obtained from the lead managers and the top brass of MTNL from London.The Government had offered 20 million primary shares and 40 million secondary shares. The Government would decide on the green shoe option of 10 million shares over the next week or so. In fact, sources close to the financial advisers to the issue stated that in dollar terms the issue had been undersold by over one dollar.The price of Rs 235 represents a premium of 1.18 per cent on Wednesday's closing price of Rs 232.25, down 75 paise, at the Bombay stock exchange (BSE). The Government was forced to go ahead with the Mahanagar Telephone Nigam Limited GDR even after the fluid situation in the world financial markets and the political uncertainty within the country owing to the pressing need of the fiscal deficit of the Government. Last month the Government had reduced the size of the issue from 100 million shares to 60 million shares while cutting the size of the proceeds which are to accrue to Mahanagar Telephone Nigam Limited itself while keeping the disinvestment proportion intact.
