Supported by robust dollar inflows and firm stock markets,the Indian rupee hit a three-month high of 49.2650/2750 per dollar,rebounding from the days low of 49.66 and gaining 0.4 per cent from Tuesdays close of 49.44/45. With this,the rupee has gained 9.26 per cent in the last two months,largely aided by measures taken by the government and the Reserve Bank to boost inflows.
The currency which hit a low of 54.30 in December 2011 has been rising of late as overseas investors poured in over Rs 26,000 crore ($5.08 billion) in Indian markets in January 2012,the highest one-month net inflow in 16 months,as sentiments got a boost from easing inflation concerns and attractive valuations. This is the highest net investment by FIIs in stocks and bonds since September 2010.
Market experts said that strengthening of rupee and easing concerns over inflation led to the foreign investors stepping up their stock purchases during the month. FIIs had mostly stayed away from Indian equities in 2011 but made a net investment worth $2 billion in stocks the first month of 2012. However,they appeared more bullish on the debt market,where they made a net inflow of $3 billion in January. On Wednesday,FIIs brought in Rs 1,676 crore. Buoyed by sustained FII inflows,the stock market barometer Sensex also gained over 11 per cent in January. The index finished at 17,193.55 on January 31,the last trading session of the month,gaining 330 points from its last close. On Wednesday,the BSE Sensex moved up 107 points to an 11-week high of 17,300.58 as FIIs bought select bluechips such as RIL,and picked up equities in the metals,capital goods and auto sectors amid positive cues from overseas markets,mainly Europe.
The January effect and the Tuesday wonders brought much-needed cheer in most counters owing to strong FII inflows. The Nifty has closed above the 200 daily moving average for two sessions in a row. A close above the same for two-three more sessions could reinforce the current intermediate upswing, said Amar Ambani,head of research,IIFL.
Some cooling is not ruled out though following a stunning January. Movement in currency and commodities will be crucial going ahead. One has to see how the government tackles these issues once the political compulsions of state elections subside, he added.
European situation is also settling down,which gave the investors a necessary appetite to invest in Indian market. In addition,attractive valuation also helped FIIs to pour money, said an analyst. Appreciating rupee gave overseas investors opportunities to flock towards the Indian market. We might not witness the same level of investment in this month (February),as there is no trigger which can drive FIIs to pump in fresh capital.