INDIA RUPEE Rupee to start important week muted, equity flows watched

Illustration photo of an India Rupee note
An India Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration

MUMBAI, Jan 30 (Reuters) - The Indian rupee is expected to open little changed to the dollar on Monday, with the focus on the Union budget, the U.S. Federal Reserve's policy decision and the fallout of the Adani Group episode.

The rupee is likely to open around 81.5225, the same level as on Friday. The rupee underperformed its Asian peers last week, posting its worst performance since mid-December on the back of likely dollar purchases by the Reserve Bank of India and hedging by importers.

There has so far been limited impact on the rupee of the slump in Indian equities due to a U.S. short-seller's report on Adani Group that flagged concerns about debt levels and the use of tax havens.

Still, analysts reckon that the Adani development poses a challenge for the rupee, with foreign outflows from Indian equities picking up in wake of Hindenburg Research's report on Wednesday.

Foreign investors have taken out $730 million in the two trading sessions since then.

Indian equity markets "do present a headwind for the rupee" as the currency is unable to capture much of the benefit of the dollar weakening, Srinivas Puni, managing director at QuantArt Market Solutions, said in an email.

The dollar index was hovering near 102, while most Asian currencies were slightly higher. All eyes are on the Fed policy decision due during U.S. trading hours on Wednesday.

While the Fed is widely expected to announce a smaller 25 basis point rate hike, its guidance on future policy is what will affect the market. Fed futures have priced in rate cuts by the central bank later this year.

India's federal budget will be presented on the same day as the Fed decision. The budget's impact on local equities and the bond yields will be important aspects for the rupee, according to traders.


** One-month non-deliverable rupee forward at 81.68; onshore one-month forward premium at 11 paisa

** USD/INR NSE February futures settled on Fri at 81.6725

** USD/INR Feb forward premium at 11.5 paisa

** Dollar index at 101.94

** Brent crude futures little changed at $86.7 per barrel

** Ten-year U.S. note yield at 3.52%

** SGX Nifty nearest-month futures up 0.2% at 17,720

** As per NSDL data, foreign investors sold a net $31.4 million worth of Indian shares on Jan. 27

** NSDL data shows foreign investors bought a net $113.8 million worth of Indian bonds on Jan. 27

Reporting by Nimesh Vora; Editing by Savio D'Souza

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