Rupee Reverses Gains on Corp Dollar Demand, Oil.

The rupee reversed gains on Wednesday as corporates stepped up dollar purchases on expectations the rupee will weaken going ahead when unsuccessful bidder's at the country's largest share sale repatriate funds.

The partially convertible rupee closed at 44.35/36 per dollar, off the day's high of 44.2350 and steady from its close on Tuesday, when it had dropped to 44.5075 during trade, its weakest since October 13.

Rupee reverses gains on corp dollar demand, oil

"There was good demand from state-run banks as well as offshore guys which pulled the rupee off highs," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.

Some dealers in the market speculated the Reserve Bank of India (RBI) may have bought dollars through state-run banks to absorb the large dollar flows for Coal India's USD 3.5 billion share sale.

But most large state-run banks who usually represent the RBI said there had been no intervention in the market.

The institutional portion of the Coal India IPO, the country's largest ever, closes on Wednesday, while retail investors have one more day.

State-run Coal India's IPO was covered more than 10 times on the third day of the issue launch, exchange data showed, as large investors crowded in on the final day for institutional orders.

Shares shed 0.6%, with sentiment dented following China's surprise move to raise interest rates late Tuesday, with the Coal India IPO also acting as a drag.

CAPITAL INFLOWS

Foreigners have so far this year, bought shares worth a record USD 23.6 billion, in addition to last year's record USD 17.5 billion inflows. The rupee is up 4.9% on the year.

Traders said there would be an outflow of funds when Coal India begins to refund excess subscriptions and this would push the rupee lower.

"When the outflows happen, lots of custodian banks are expecting the rupee to be at 45. So they are preferring to be long at these levels," a dealer with a large state-run bank said.

Traders said there was good dollar demand from importers including oil refiners in the market. Oil, is India's biggest import and refiners are the largest buyers of dollars in the domestic currency market.

The dollar's broad decline against major currencies prevented a further drop in the rupee, dealers said. The index of the dollar against six majors was down half a percent when the rupee market closed.

The dollar fell against a basket of currencies for the first time in four sessions on Wednesday, as appetite for higher-yielding currencies stabilised after being jolted by a surprise interest rate hike by China.

One-month offshore non-deliverable forward contracts were quoted at 44.73, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 44.4750, 44.4850 and 44.4475 respectively, with the total traded volume on the three exchanges a below average USD 6.9 billion.

Source : moneycontrol.com