The rupee on Wednesday gained 17 paise to close at 69.5387 against the US dollar. The closing price of the rupee was recorded at an over two-month high on the back of higher inflow of foreign capital.
Foreign investors kept their focus on the Indian equity markets as the foreign fund inflows increased in the domestic markets on Wednesday. The provisional data on the exchanges showed that Foreign Portfolio Investors (FPIs) invested Rs 2,722.28 core in the capital markets on Wednesday, while FPIs had put in Rs 2,477 crore on Tuesday.
It appears that most of the central banks are not in a mood to hike the interest rates at the moment, which is one of the factors for an increase in the fund flows in the emerging markets. The fund inflows in March are generally good, which is also an add-on factor for the strengthening of the currency, said MV Shrinivasan of Mecklai Financial Services.
The 30-share BSE index closed at 37,752.17 on Wednesday, up 0.58% from it previous close. The Nifty index closed up 0.36% at 11,341.70. All Indian asset classes are at risk-on mode, fuelled by increased expectations of the return of Prime Minister Modi. Rupee is particularly helped by positive flows and light market positioning, said Anant Narayan, professor of finance at SPJIMR. However, rupee continues to have a core negative flow across a large current account deficit and net FDI, said Narayan.
The recent move has seen a sharp rise in rupee valuation in real effective exchange rate terms. While the positive rupee sentiment may continue in the run up to elections, importers may be well advised to use this window of opportunity to purchase insurance, added Narayan.