Sensex index pulls back, Rupee and Gold continue strength on Dollar weakness

Indian share prices fell 0.24% yesterday as investors locked in gains ahead of software exporter Infosys’s earnings today, dealers said.
They said the markets were volatile on bouts of selling in banking and capital goods stocks, which were gainers in previous days.
The benchmark 30-share Sensex index fell 35.85 points to 15,009.88, off a new intraday high of 15,114.95 points. The previous intraday record of 15,085.22 was set on Monday.
“The market was volatile at higher levels, (it was) unable to sustain at higher levels. Infosys earnings data will determine future trends,” said a dealer at brokerage Jamnadas Morarjee.
Losers led gainers 1,467 to 1,170 on volume of Rs50.24bn ($1.24bn).
Infosys Technologies climbed Rs26.85 or 1.35% to Rs2,019.95, although analysts expect net profit growth to be slower than in the past due to a firmer rupee and increased wage costs.
India’s largest software exporter TCS rose Rs9.95 or 0.85 % to Rs1,186.5.
Engineering multinational Larsen & Toubro fell Rs27.1 or 1.12% to Rs2,388.6 and India’s largest bank State Bank of India fell Rs20.65 or 1.31% to Rs1,550.6 as investors locked-in gains.
India’s largest carmaker Maruti Udyog rose Rs18.9 or 2.38 % to Rs813 as rate concerns eased.
The rupee rose to the highest in more than nine years stoking speculation overseas funds will buy more local equities. The currency climbed for a third day after data released by the Securities and Exchange Board of India (Sebi) showed global investors bought more stocks than they sold in the six days through Friday, the longest run in more than a month.
The rupee reached its strongest since May 1998, before the US imposed sanctions on India after it conducted five nuclear tests.
“The capital flows are robust and are keeping the undertone in favour of the rupee,” said K Raghunathan, chief currency trader at state-owned Union Bank of India in Mumbai. “The rupee will sustain its rise in the near term.”
The rupee rose 0.1% to 40.385 against the dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. It may rise to 40.30 this week, Raghunathan said.
The Sensitive Index rose to a record 15,114.95 in intraday trading yesterday, before paring gains. The index, which has rallied every month except February this year, closed at a record 15,045.7 on Monday.
Investors abroad more than doubled purchases of local equities to $6.5bn this year through Friday, compared with $2.85bn in the same period last year, according to Sebi data.
The rupee’s gains were limited by speculation the central bank will sell the currency through state-owned lenders to prevent export growth from slowing.
“The rupee’s rise has strengthened speculation the central bank will intervene, because exporters’ concerns are growing,” said Arun Kaul, treasurer at state-owned Punjab National Bank in New Delhi
China’s yuan rose the most since the end of a dollar link in July 2005 after Asian currencies that the central bank uses to monitor its exchange rate gained. Bonds fell. The currency ended a four-day decline as a government report showed the nation's trade surplus almost doubled from a year ago to a record $26.9 billion in June.

The People's Bank of China wants a stronger currency to curb exports because the influx of foreign exchange has helped fuel the fastest pace of inflation in more than two years. “The dollar against emerging markets is weaker across the board, helping yuan gains,” said Nizam Idris, currency strategist at UBS AG in Singapore.

China's currency will rise 5% this year against the dollar, he said. The yuan rose 0.27% to 7.5810 in Shanghai, also the strongest close since the end of the fixed exchange rate. All of the 10 most-traded Asian currencies tracked by Bloomberg data and the yen strengthened versus the dollar. While the yuan rose 1% against the dollar in the past month, it fell 0.6% versus the won and dropped 0.9% against the Indian rupee. The US lawmakers have been urging China to let the yuan rise faster to help slow exports and curb the Asian nation's trade surplus. They blame a widening trade gap between the two countries on an undervalued Chinese currency. Small yuan appreciation will only increase speculation that the currency will appreciate, the Securities Times newspaper said, citing a report written by Xia Bin, head of the Institute of Finance at the State Council's Development and Research Center. Exchange-rate flexibility will increase, China Securities Journal reported, citing central bank Assistant governor Yi Gang. The bank manages the yuan against a basket of currencies including the yen and South Korea's won. The central bank today fixed the daily reference rate at 7.5845, the highest since the end of the dollar link. China may let the yuan rise as much as 10% over the next 12 months as the government seeks to ease its trade surplus and slow inflation, said Ramon Maronilla.

The Centre is likely to announce a relief package for exporters who have been hit by rupee appreciation. Discussions were held between finance minister P Chidambaram and RBI governor YV Reddy in this regard. The rupee has risen nearly 10% since the beginning of 2007, including 6.4% during April-June. This has hurt labour-intensive sectors such as textiles and leather, software companies and small and medium exporters.

Commerce minister Kamal Nath is understood to have appraised Prime Minister Manmohan Singh about the grievances of exporters and also forwarded suggestions for a relief package.

At the meeting, Nath pressed for an increase in duty entitlement book (DEPB) and duty drawback rates by 5%. Besides, he sought reduction in the rate of interest on pre-shipment and post-shipment credit to exporters from the current rate ranging between 9% and 11% to 6%. “The package is expected in next three-four days,” a high-level government official said.

Besides this, the commerce minister has also recommended to the finance ministry that the Exchange Earners Foreign Currency (EEFC) Accounts be made interest bearing. The ministry is also asking RBI to direct banks to meet their 15% export credit disbursement target. Reddy and Chidambaram are believed to have discussed these measures.