Rupee up on corporate dollar sales; shares eyed

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The rupee strengthened on Friday as a large corporate sold dollars while early gains in the local sharemarket raised hopes of easing risk aversion which may lead to more capital inflows into the country.

At 9:55 a.m. (0425 GMT), the partially convertible rupee was at 45.44/45 per dollar, 0.4 percent stronger than its close of 45.61/62 on Thursday.

"A large corporate sold dollars in early trade today but 45.45-45.65 range should hold for the day. Bids for oil and gold purchases will emerge at lower levels," said Vikas Chittiprolu, a senior foreign exchange dealer, with state-run Andhra Bank in Mumbai.

Oil is India's biggest import and refiners are the largest buyers of dollars in the local currency market.

"Government's external debt related bids will also persist. Some dollar flows for the NMDC sale are expected. Hopes from industrial output are high so it will surely impact the markets if the data disappoints," Chittiprolu said.

Industrial output data due at 0630 GMT is forecast to rise 16.65 percent in January from a year earlier, the median forecast in a poll of 20 economists shows. That is marginally lower than an annual rise of 16.8 percent in December.

The follow-on share sale in state-run NMDC, India's largest iron ore producer, which opened on Wednesday, closes later in the day and dealers expect some dollar inflows for the issue.

Traders said they would watch the domestic sharemarket moves for cues on capital flows.

Indian shares rose 0.4 percent in early trade on Friday, with financials leading the rise, supported by marginal gains in Asian markets.

Since mid-February, foreigners have purchased nearly a net $3 billion worth of shares. Last year, record inflows of $17.5 billion had helped the rupee gain 4.7 percent year-on-year.

Most Asian currencies also rose versus the dollar helping sentiment for the rupee.

"The dollar selling by a large corporate and non-deliverable forwards being much lower, are both helping the rupee," said Madhusudan Somani, head of foreign exchange trading, at Yes Bank.

One-month offshore non-deliverable forward contracts were quoting at 45.42, a touch stronger than the onshore spot rate, suggesting a bullish near-term outlook.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were both quoting at 45.5125, with the total traded volume on the two exchanges at about $950 million.