Expected inflows of foreign funds in the Indian equity and debt markets, coupled with the quarter-end hedging by IT firms will strengthen the rupee value during the upcoming week, experts said on Saturday.
According to market observers, rupee value is expected to be stable around 65.80-66.30 to a US dollar in the coming week, as foreign funds increase their inflows into the Indian equity and debt markets.
"The trickling in of funds by foreign investors and the quarter-end hedging by the information technology (IT) companies will support the rupee value to strengthen further," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, said.
Foreign funds had gone on a selling frenzy in the Indian equity and debt markets during the period preceding the US Fed's FOMC (Federal Open Market Committee) meet which decided to raise key interest rates.
Apart from global factors, the slow pace of domestic reforms led foreign portfolio investors (FPIs) away from the equity markets, thereby negatively impacting the rupee value.
Banerjee said that expectations of healthy foreign capital influx into the central and the state governments' bonds from January onwards will keep the rupee on a stable footing.
"Hopes of an influx of foreign funds into the central and state governments' bonds from January onwards will keep the rupee on a stable footing," Banerjee elaborated.
On September 29, RBI decided to raise foreign investors' exposure limits in central government's securities to five percent of the outstanding stock by March 2018.
In another key decision, the central bank had set a separate limit for investment by foreign funds in state development loans, which are to be increased in phases to reach two percent of the outstanding stock by March 2018.
The RBI's decision is expected to usher in around $2.5 billion by this fiscal end.
On a weekly basis, the rupee strengthened by 19 paise at 66.21 (23 December) to a US dollar from its previous close of 66.40 to a greenback (18 December).
The National Securities Depository Limited (NSDL) figures showed that the FPIs were net buyers during the week ended 23 December. They bought Rs.961.76 crore or $145.04 million in equity and debt markets from 21 to 23 December.
The data with stock exchanges showed that the FPIs bought stocks worth Rs.479.89 crore in the week under review.
Nevertheless, the FPIs had taken out Rs.23,352 crore during the period August-September. In November alone, the foreign investors off-loaded stocks worth around Rs.9,000 crore.
On technical levels, rupee has got a healthy spot market support at 65.80 to a US dollar.
"In the near term a close below 66.30, spot can come down till 66 odd levels," said Hemal Doshi, chief currency strategist, Geofin Comtrade.
"However, there is positive divergence forming on four hourly charts which suggest any dip to be bought for an upside towards 66.50, crucial support on downside at 65.80. Weekly range 65.80 to 66.50."
