The rupee climbed higher on Friday driven by robust capital flows into local stocks and debt, but oil importers' clamour for dollars is seen capping the gains.
At 10:35 a.m. (0506 GMT), the rupee was at 49.03/04 to the dollar, up from Thursday's close of 49.19/20. It had touched 48.98 in early trades.
"There are a good amount of (dollar) inflows happening. But rupee may not strengthen past 48.90-48.95 level because of continuous dollar demand from oilers," said a foreign exchange trader with a foreign bank.
Oil refiners, the biggest buyers of dollars in the local currency market, have scaled up their purchases over the past few days to clear outstanding import payments to Iran as quickly as possible as Western sanctions tighten on the country.
India, which imports about 80% of its oil requirements, imports about 12% of its oil needs from Iran. But New Delhi is now looking to buy more oil from Saudi Arabia, as a replacement for a cut in supplies from Iran.
Foreign funds have invested around $9 billion into Indian equities and debt so far in 2012, according to Securities and Exchange Board of India.
Given this huge influx of foreign capital, any outflows related to Citigroup Inc's stake sale in Housing Development Finance Corp is unlikely to create big selling pressure on the rupee, traders said.
"Any outflows for the Citi deal will be staggered, so it's not going to impact the spot rupee rate very much. In any case, there are a lot of dollar inflows happening to help absorb any shock," the dealer said.
Citigroup said it was expected to have raised $1.9 billion on selling its 9.85% state in HDFC.
One-month offshore non-deliverable forward contracts were at 49.41.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 49.05, on a total volume of $950 million.