Rupee loses vs Dollar, Sensex makes new highs, Gold on Fire

India’s Sensitive Index rose to a record, on speculation improved earnings will draw more funds to equities. The rupee fell for a second day on speculation the central bank bought dollars to stem a rally in the local currency that threatened to erode export earnings.
The Bombay Stock Exchange’s Sensex rose 181.42, or 1.2%, to 15,092.04, exceeding its July 9 closing high of 15,045.73. The S&P/CNX Nifty Index on the National Stock Exchange added 59, or 1.3%, to 4446.15.
ICICI Bank Ltd and Reliance Industries Ltd advanced. ICICI, the nation’s most valuable lender, added Rs12.80, or 1.3%, to Rs966.55. Reliance Industries Ltd, the biggest company by market value, added Rs17.15, or 1%, to Rs1,718.90. Hindalco Industries led metal stocks higher on takeovers in the metals industry and higher commodity prices.
Companies will report earnings this month for the quarter ended June. Earnings of companies in the Sensex, excluding oil stocks, will grow 20.2% in the year ending March 31, Deutsche Bank said in a note to clients yesterday.
Chennai Petroleum Corp, an Indian refiner, rose after reporting a 27% gain in first-quarter profit to Rs3.23bn. The shares climbed Rs13.6, or 4.8%, to 298.25.
Hindalco, the country’s biggest maker of non-ferrous metals, added Rs9.55, or 6.2%, to Rs164.5. Tata Steel Ltd, the world’s sixth-largest steelmaker, rose Rs16.75, or 2.6%, to Rs672.25.
Sterlite Industries (India) Ltd, the copper and zinc producer controlled by billionaire Anil Agarwal, gained Rs32.15, or 5.3%, to Rs642.15.
Inflation in India is likely to remain moderate in coming months as policy steps take effect, and that will help offset the impact of the strength of the rupee on exports, a finance ministry official said on Thursday.

“Rupee rise may have affected export competitiveness, but has had a salutary impact on inflation and over time lower inflation should compensate for nominal appreciation,” the official, who did not wish to be identified, told reporters.

“In the months ahead, inflation is likely to remain moderate as fiscal and monetary measures already initiated work their way through the economic system.” The Reserve Bank of India’s six-country trade weighted real effective exchange rate had appreciated 6.1 per cent since March 2006, the official said.

The rupee has risen more than 9 per cent against the dollar this year, hitting a nine-year high of 40.28 per dollar in May. Wholesale price index-based inflation has eased to annual rates just above 4 per cent in mid to late June from a two-year high of 6.7 per cent in January.

The central bank has raised its key lending rate five times since mid-2006 and raised banks’ reserve requirements three times since December to rein in inflation and credit growth.
The Indian currency dropped as importers bought dollars, which they need to pay for shipments from abroad, on concern purchases by the Reserve Bank of India will make the US currency costlier.
A government report yesterday showed industrial growth slowed in May, raising concern that interest rate increases by the central bank may be cooling expansion.
Gold price rose in the domestic market on the back of a weaker rupee as the Reserve Bank of India intervened in the forex market, pushing the rupee down by almost 36 paise in a single day. The yellow metal rose to one-month high internationally as well with a weak dollar and strong fund activity.

Gold for August delivery on Multi Commodity Exchange (MCX) traded at a high of Rs 8,765 per 10 gm. Spot gold in Mumbai gained in the last week by Rs 100 to around Rs 8,750 per 10 gm.

Gold is looking bullish and could touch Rs 8,900 in the next few weeks, said Krishna Nathani of India Bullion. Internationally too, the next target for gold is at $674 per ounce. Spot gold was at $666 per ounce in early trading in New York. "The bullion markets are largely following the weakness in dollar. With the dollar hitting record lows against the euro, 26-year-low against sterling and a one month trough against the Japanese yen, outlook for the yellow metal remains positive in the weeks to come," said a report by MAPE Admisi Commodity Research.

Further, with the central bank annual sales quota coming to an end, the prices could gain on supply shortages. In India, inflation is expected to moderate on tightening fiscal and monetary policies and thereby a softer rupee. A softening rupee would continue to help domestic gold prices to rise tracking overseas markets. MAPE Admisi pegs gold price to trade in the range of Rs 8,800-8,900 per 10 gm in the coming weeks.

Internationally, a rather muted inflation dialogue from the Federal Reserve this week and a poor start to US earning cycle had kept the trend in the dollar negative. This would boost gold. The downtrend in dollar is likely to continue in the medium term as concern remains that interest rate in US is likely to remain steady or fall in the later half of 2007.
The rupee fell 0.2% to 40.4975 per dollar at the close in Mumbai, according to data compiled by Bloomberg. It dropped as low as 40.705 in intraday trading, the lowest in one week.
The Indian currency has gained 9.3% this year, more than five times its advance in 2006. It is the second-biggest gainer among Asian currencies this year.
The Federation of Indian Export Organisations asked the government on July 5 to take measures to temper the rupee’s appreciation, which it said is hurting Indian companies’ overseas sales.
Export growth slowed to 12.7% in the five months through May from 19% in the year-ago period, a government report showed said July 2.
Infosys Technologies, India’s second-largest computer-services provider, cut its profit and sales estimates yesterday after a stronger rupee eroded the value of earnings from the US, its largest market.
The central bank has been managing capital inflows and the exchange rate by purchasing dollars and mopping up excess cash, Deputy Governor Rakesh Mohan said on June 14.
Its foreign exchange reserves rose $36.2bn in the first half, compared with $25.7bn for the six-month period last year, suggesting it bought more foreign currency.
“There were some big dollar purchases by companies, prompting banks to cover short-dollar positions,” said M Natarajan, head of currency and bond trading at IndusInd Bank Ltd in Mumbai. “The lower industrial production data also probably damped the market sentiment.”