Rupee to rise in 2010 on inflows, growth view: StanChart.

MUMBAI: India's widening trade gap may eclipse forex market sentiment in the near-term, but prospects of capital inflows and strong economic growth may keep the outlook for the rupee bright in the medium-to-long-term, a strategist at Standard Chartered Bank told Reuters on Wednesday.

The trade deficit edged back into double digits in April after averaging $9.1 billion in Q1 2010 and has remained elevated since then. Latest data shows the gap stood at $12.93 billion in July, highest since September 2008 and widening further from $10.55 billion in June.

"In the near-term, trade deficit financing concerns may continue to dominate the INR as the market debates the certainty of capital inflows in Indian markets," Priyanka Chakravarty, forex strategist at the bank said in an interview.

"However, capital flows have already staged a smart recovery and we expect sustained inflows to eventually overwhelm trade deficit concerns," she said.

The Indian rupee rose 4.7 percent in 2009, helped by record inflows of $17.5 billion into equities from overseas investors, but is down 0.8 percent this year despite $12.8 billion of inflows so far.

"The key reason the large foreign institutional investor (FII) inflows have failed to trigger sustained INR appreciation is because the outlook for FII inflows has been very clouded," Chakravarty said.

Recent worries about global growth have followed global sovereign risks and thus market participants are more comfortable playing a range on the rupee, rather than taking an outright appreciation view, she said.

The rupee was trading at 46.90 per dollar at 11 a.m., up 0.4 percent on the day. Chakravarty expects the rupee to continue to trade in a range of 45.80 to 47.50 in the near-term and sees the unit at 47 to the dollar at end-September 2010.

Source : economictimes.indiatimes.com