Re surges to 5-wk high due to FII flows, equity mkt rally

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The rupee posted a smart rally today. The Indian currency rose to a five-week high on the back of strong FII flows and strength in the equity markets, reports CNBC-TV18's Latha Venkatesh.

The trick appears to have been done by a lot of debt flows. The government opened up USD 5 billion more for foreign investment in government securities that was auctioned to various FII brokerages. The cap runs out on January 15 and there is still a little over USD 1-1.5 billion left to come. So, either, because of that the money came and in anticipation of that money there was a goodish bit of dollar buying.

There has also been some steady market intervention by the RBI which is giving people the feeling that the RBI is quite determined to keep the rupee at a certain level. That also has led to a lot of FII's unwinding their hedges, a lot of exporters wanting to come in and sell their dollars. Some people say 52.20 is a very important technical level. That was the day in which it was at that level when those controls were bought in terms of speculative levels available to banks, FIIs, exporters which were all taken away.

That was the day when the rupee was at 52.20 and when that level got breached a lot of people started coming in and selling their dollars. The more important part of course is that equity markets did well which also has a sentimental positive impact on the dollar. A longer term issue really is that NRE flows are genuinely picking up. That's because the savings deposit rate on them has been deregulated and now people are getting as much as 9-9.5-9.75% for it.

So that's turning from a trickle into quite a flood. So all this together have compounded into taking the rupee to 51.70, a 1.5% gain which is quite clearly the outperformer, in sharp contrast to what it was in the last six months of 2011, when it was ranked the underperformer in the Asian basket.