The rupee appreciated 19 paise to 82.94 (provisional) against the U.S. dollar on Friday, as the inclusion of India in the JPMorgan bond index boosted investor sentiment.
Forex traders said the decision of JPMorgan Chase & Co to include Indian government bonds in its benchmark emerging market index is expected to have far-reaching implications for India's debt market and global investors.
At the interbank foreign exchange market, the local unit opened at 82.75 against the U.S. dollar and touched the lowest level of 82.97 in the day trade.
The rupee finally settled 19 paise higher at 82.94 (provisional) against the previous close.
On Thursday, the rupee settled at 83.13 against the U.S. dollar.
India's inclusion in a major global bond index will open doors to increased foreign investment in the nation's debt market, traders said.
Analysts expect India's inclusion in a major global bond index will lead to a direct inflow of $20-25 billion in the debt over the 18-21 months.
"The Indian rupee outperformed in the week gone and rebounded after three weeks of downfall after India's bond inclusion in the Global Bond Index. Though the inflows will come next year, the sentimental impact has been seen on the local rupee," Dilip Parmar, Research Analyst, HDFC Securities, said.
The impact of the announcement may not be sustainable amid a rally in the greenback and foreign fund outflows from domestic equities amid a surge in the short-term U.S. bond yields.
In the near-term, spot USDINR is likely to trade in the range of 83.15 to 82.60, Mr. Parmar added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.24% to 105.63.
Brent crude futures, the global oil benchmark, advanced 0.79% to $94.04 per barrel.
On the domestic equity market front, the BSE Sensex closed 221.09 points or 0.33% higher at 66,009.15. The broader NSE Nifty declined 68.10 points or 0.34% to 19,674.25.
Foreign Institutional Investors (FIIs) were net sellers in the capital market on Thursday as they offloaded shares worth ₹3,007.36 crore, according to exchange data.
