The Rupee is here to stay. Powers higher vs. the Dollar

The still not fully convertible Indian rupee is being freely accepted and exchanged in many Asian countries and Indian leisure destinations are quoting tariff in rupees, even as exporters feel the pinch from the rising currency, reports said Tuesday. The rupee is being freely accepted and exchanged in Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka and some other countries as more commercial establishments, hotels and even money changers are willing to accept the currency, reported Economic Times.

Tarmo Wong, a manager with a money exchange shop in one of the biggest hotels in Singapore said, "We have orders to accept 500 and 1000 rupee bills. We have been doing this for almost 6 to 8 months now."

Rupee may open higher on Tuesday on the back of the dollar's weakness against some major currencies, but likely central bank intervention could limit gains.

The partially convertible rupee ended at 40.65/66 per dollar on Monday, off an intraday peak of 40.60 but at its highest close since June 5. It had ended at 40.70/71 on Friday.

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Some exporters pared dollar holdings, because they found the levels attractive, driving up the rupee, dealers said.

A Reuters survey of 11 currency strategists conducted on June 29 showed the market was slightly more positive on the rupee, compared with the middle of June, extending the rupee-bullish view the market has held for most of this year.
In some Asian countries banks and foreign exchange agents have started accepting Indian rupees.

"In the past few months, the rupee has gained acceptance in almost all countries in Asia" said Prakash Dagia, a regular business traveller to Asian countries, who added that the best part is one can exchange a currency back to Indian rupees before flying back to India.

Leading hotels in India are asking foreign tourists whether they would like to settle bills in rupees instead of in dollars, reported Economic Times.

Several hotels may soon do away with the dual tariff structure and offer a single rupee tariff - a move that will place Indian and foreign tourists on par.

"We are introducing a single-rupee tariff in October this year for all our hotel properties across the country except for the one in Goa, which will follow a charter rate," said Pattu Keswani, chairman of hotel chain Lemon Tree and Red Fox.

The rupee-dollar fluctuation has affected revenues of hotels across the country by over 10 per cent this year, as they earned less selling to foreigners paying in dollars.

The dip in dollar rates in the first half of the year may force hotels, which usually revise room rates in October every year, to consider a tariff hike well before that time.

The effect of the weakening dollar is also being felt in leisure hotspots frequented by foreign tourists such as Agra, Jaipur, Goa and Kerala.

Carlson Group, owners of the Radisson brand, has already started quoting rupee rates while entering into advance contracts with international clients. "Rupee rates gives us more stability," said KB Kachru, South Asia Vice-President, Carlson Group.

Torrential rains may have tested the limits of Mumbai's ability to cope, but capital markets were not even dampened. The benchmark BSE Sensex hit a lifetime high of 14,664 points, powered by heavy investments by Foreign Institutional Investors (FIIs).

At a time when market experts were predicting a lower return of 15-20 per cent from Indian equities in the current year, FIIs stomped on the accelerator, pumping in close to Rs 19,000 crore into Indian equities in the six months ended June 30, 2007.

According to data released by markets watchdog Securities and Exchange Board of India (SEBI), FIIs had bought Indian equities worth a net Rs 18, 931.80 crore during this period, up 63.17 per cent or Rs 7,330 crore from the net Rs 11,601.80 crore they invested in the same period last year. The Sensex has gained 5.2 per cent during the current calender year.

Market analysts said recent mega public issues like DLF and ICICI Bank, coupled with a strengthening rupee, explain the acceleration in FII investments in an otherwise largely lacklustre market.

"The 2006 'May effect' (when the markets crashed) does make some difference. But it is largely because of the two mega public issues," said Ashish Agarwal, associate of Institutional Equity of Edelweiss Capital. Andrew Holland of DSP Merrill Lynch agreed. "There have been a few big bang public issues in the current year that have generated good FII interest," he said.

A rising rupee has been icing n the cake. Since January this year, the Indian rupee has appreciated by over 8 per cent against the dollar. From Rs 44.26 per dollar on January 1, 2007, the rupee ppreciated to Rs 40.67 on Monday.

"Currency appreciation is usually a good sign and rupee appreciation would have signalled a strong outlook on India for several FIIs," says Agarwal.

A rise in the rupee exchange rate translates into added return of the same magnitude in dollar terms for foreign institutional investors.

India's biggest initial public offering (IPO), the Rs 9,200-crore issue of realty giant DLF, hit the bourses in mid-June 2007, closely followed by the Rs 10,000-crore follow-on public issue of ICICI Bank. Both the issues saw strong FII interest.

While the FIIs bid for 75.05 crore shares of ICICI Bank shares, they applied for 198.7 crore shares of DLF out of the 1,044 crore shares offered for qualified institutional buyers, who include mutual funds, banks and other financial institutions.

Despite the Indian rupee not being a deliverable currency in the international money market, its acceptance is on the rise due to growing trade and a surge in tourist inflows.

The flip side of the rising rupee is being experienced by Indian exporters, who have been lobbying with the government to provide measures to give immunity against a stronger rupee.

Export growth took a dip in May with just 18 per cent growth against 20.3 per cent in the same month in the preceeding year.

Commerce and Industry Minister Kamal Nath said that the government is working on a package to give relief to exporters who have been hit by the strengthening rupee.

The rupee rose Tuesday to 40.54 rupees per dollar, its highest level since June 6, spurred by the prospect of surging investment flows into Asia's third-largest economy.

"The positive signals from Asian equities are leading the market to believe that the stock market will do well, and that the inflows will be good," a chief dealer with a foreign bank, told Economic Times.

The rupee hit a nine-year high of 40.28 rupees in late May, but was knocked off its peak by suspected intervention by India's central bank, the Reserve Bank of India (RBI). It has gained about 9 per cent this year, driven higher by robust capital flows into the fast-growing economy.