Indian Rupee goes back on track

Indian currency has rebounded after touching a 3-year low on July 19. The rally was fueled by equity purchases by global investors as the benchmark stock index rose almost 45% in the past four months, reaching a record on Oct. 16.

Overseas investors who sold billions in stocks in May, the most ever, have returned to buy more than $1 billion each month in August and September. Purchases are set to exceed the billion in October as well, based on data provided by market regulator Securities & Exchange Board of India.

Investors are benefiting from rising corporate earnings as growth in Asia's fourth-biggest economy expanded at an average rate of 8% in the last 3 financial years through March 31. It may grow 8.2% this financial year.

Growth, Inflation

The recent rise in the index is backed by fundamentals such as better earnings reported by companies. The growth momentum again is another reason why the rupee should get stronger.

The rupee's 3.5% advance in the past three months trails only the New Zealand dollar among several Asia-Pacific currencies.

India's growth rate, second to China's among the world's major economies, also threatens to stoke inflation. Wholesale prices rose 5.26% in the week ended Oct. 14, the most since mid-June, the Ministry of Commerce and Industry said on Oct. 27.

A 23% decline in crude oil prices from their all- time high of $78.4 a barrel touched on July 14 also helped the rupee sustain gains. Higher costs hurt India which depends on imports for 3/4 of the crude it needs.