Foreign Fund Flow: Rupee to gain strength on likely return of FIIs

The expected return of foreign capital into India`s key indices will strengthen the Indian rupee further during the upcoming week.

Accordingly, the rupee is likely to touch the 74 to a USD mark during this period.

The FIIs have been on a selling spree in India`s equity market, however, the rate of off-load has significantly come down during the last few sessions.

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On last Thursday, during the hour-long `Muhurat Trade Session`, FIIs sold just Rs 328.11 crore worth of stocks on the BSE, NSE and MSEI in the capital market segment.

"Rupee closed strong in this short trade week at 74.50 to a USD on back of lower crude and IPO inflows. Also on the back of IMF`s suggestion of lower interventions to India`s Central bank," said Sajal Gupta, Head, Forex and Rates at Edelweiss Securities.

"The US yields also softened a bit after touching 1.70 levels paving way for a rally in risk assets. Rupee is expected to test 74 levels this week and the Nifty is likely to gain further strength."

According to Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities: "This week rupee behaved exactly as expected and appreciated amid heavy FPI flows from ongoing IPOs. Better PMI numbers of manufacturing and service activities indicating economic conditions are improving."

"We now expect the Rupee to consolidate its recent gains and also factor in the important announcement of tapering from the US FOMC this week. We continue to remain rupee bulls, and we expect it to appreciate towards the 73.5-mark over the course of the next few weeks."

On the other hand, Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services said: "Domestic factors continue to be in favour of the rupee as a number of IPOs are attracting fund flows and thereby supporting the currency. Inflation and industrial production too will be in focus on the domestic front."

"Rise in inflation is likely to trigger volatility for the currency as well as 10-year yields. We expect the momentum for the rupee would continue to remain positive and it could quote in the range of 74.20 and 75.20."

In addition, the currency desk of Emkay Global Financial Services: "This week was a short week with USDINR spot witnessing a downtrend on IPO subscriptions."

"But we can brace for a heightened volatility next week after the FOMC, BOE monetary policy decisions, OPEC meeting and US NFP data."