News: 'Rupee's gains here to stay'

(RTR 07/05/2007) Mumbai - The Indian rupee, which has risen sharply in recent weeks, has the potential to appreciate another percent or two, according to investment bank Credit Suisse.

The ongoing rally is seen shrinking profits of export-driven industries like software services and pharmaceuticals, Credit Suisse said in a note on Monday.

"The rupee's appreciation is sharp and is here to stay. The impact is material for many and can no longer be ignored as cyclical," the Swiss bank said.

The rupee has risen more than 8 per cent against the dollar so far this year and is Asia's best-performing currency. It raced to the latest of a series of nine-year peaks on Monday and was quoted as high 40.53 against the dollar.

Credit Suisse said that exporters with relatively low pricing-power would see profits decline if the rupee continued its ascent.

"For example, the pharma companies in the short-term are price takers rather than price makers, so given the competitive landscape they can't raise their prices because of the rupee," Nilesh Jasani, Credit Suisse research analyst, said.

The rupee's gains have been powered by strong capital inflows into the fast-growing economy, including nearly $3 billion in equity-related investments so far this year.

Investors are also confident that the Reserve Bank of India will not intervene in the near future, after it aggressively sold rupees earlier this year in a bid to weaken the currency.

Credit Suisse said a stronger rupee would benefit local media and engineering companies, as well as certain consumer businesses.

A Reuters poll of 11 analysts in late April found the rupee was likely to give up its recent gains and weaken to 41.50 by end-June, and slip further to 42.40 by the end of 2007.

But analysts expected it to peak at 40.00 in the course of 2007.