Indian rupee erases gains on strong importer demand

The Indian rupee lost all of its intraday gains towards the close of trading on Tuesday as oil companies and corporate borrowers ramped up buying of dollars.

Oil refiners are the largest buyers of dollars in India's foreign exchange market as the country imports more than 80 percent of its oil requirements.

Some companies were also buying dollars to repay maturing foreign currency convertible bonds (FCCBs), traders said.

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"There is corporate dollar buying for FCCB redemptions while dollar demand by oil firms is also adding to rupee weakness," said Hari Chandramgathan, a dealer at Federal Bank in Mumbai.

The rupee closed at 49.3050/3150 to the dollar, after touching 49.05, its highest level since Feb. 8, according to Thomson Reuters data. It closed at 49.27/28 on Friday ahead of a market holiday on Monday.

However, traders said the undertone remained bullish on expectations of continued robust dollar inflows into Indian debt and equities. Indian shares climbed to their highest close in nearly seven months on Tuesday.

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Some foreign buying of corporate debt helped the rupee in early trading, traders said.

Data from India's stock market regulator last week showed that unused foreign institutional investor limits for non-infrastructure corporate bonds stood at 245.42 billion rupees ($4.97 billion) as of Jan. 31. The limit, if not used, will expire at the end of the month.

"I feel there is a good chance of rupee to revisit 48.85-48.60 in the near term," said J. Moses Harding, head of asset-liabilities committee at IndusInd Bank.

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"There is going to be plenty of offshore (dollar) supplies both from FIIs and NRIs (non-resident Indians) in the next three to six months till domestic interest rates turn sharply south."

The market will watch for dollar inflows to buy shares in Multi Commodity Exchange Ltd, which opened its initial public offering for institutional investors on Tuesday, traders said.

India's biggest commodity exchange by turnover aims to raise as much as 6.6 billion rupees ($134 million)in the IPO, which closes on Friday.

Improved global risk appetite after Greece secured the second tranche of bailout funds pushed equities higher and helped limit selling pressure on the rupee, traders said.

One-month offshore non-deliverable forward contracts were at 49.30.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 49.39, on total volume of $4.24 billion.