Aided by inflows of foreign funds in the stock market, the rupee rose to an 11-month high of 58.32 against the dollar in early trade on Monday amid expectations that a Narendra Modi-led government would put a slowing economy back on the track. But reported US dollar buying by the Reserve Bank of India capped gains and the currency finally ended at 58.59, a rise of 20 paise against Friday’s close.
A rising rupee, however, led to heavy selling in IT stocks, with the BSE IT Index falling 6%. IT firms earn a majority of their revenues in dollars and generally see a dip in their profitability if the rupee is strong.
“The rupee will be range-bound... It will neither become very strong nor weak, which is the strength of the rupee,” said Arvind Mayaram, finance secretary.
Data on Friday showed that India’s dollar reserves surged to a more than two-year high of $313.83 billion for the week to May 9, the highest since November 11, 2011.
Foreign investors have poured more than $16 billion (about `1 lakh crore) into the market in the past six months since Narendra Modi was announced as BJP’s prime ministerial candidate.
“In the near term, bullishness in rupee will continue, and any uptick towards 60 per dollar is likely to be encashed, while small support is seen around 58-level,” said Hari Chandramgethen, head of forex trading at South Indian Bank.