India's foreign exchange reserves climbed to a record high of $120.08 billion by July 2, possibly because of robust trade and investment inflows which the central bank could have absorbed.
The reserves were up $671 million from a week earlier and have increased by $19.5 billion so far this calendar year.
"This portends well and indicates foreign exchange inflows will continue," said Parthasarathi Mukherjee, treasurer at UTI Bank Ltd.
"Foreign portfolio investments could continue as Indian shares are attractively valued. But more than that, we could start seeing more foreign direct investment coming in," he said.
India's foreign exchange reserves have climbed strongly over the past few years helped by an improved export performance and higher investments from foreign funds and overseas Indians, as the economy rebounded.
Goods exports grew by nearly 25 percent in April-May, the first two months of the current financial year.
Exports rose 17.26 percent in the year to March.
Services exports have also been buoyant, with software services up more than 31 percent in the last financial year to $11.7 billion, despite a slowdown in the global information technology sector.
This kept the current account in surplus, despite the trade deficit widening as the recovering economy sucked in more imports.
Net foreign portfolio investments so far this calendar year, to July 8, stood at $3.4 billion. These totalled $7.7 billion over the whole of 2003.
Investments had slowed in the run-up to a change of government in mid-May and the new cabinet's maiden annual budget last Thursday.
But analysts expect some pick-up again after the budget proved friendly to foreign investors and with corporate quarterly earnings due next week.
The budget announced a higher ceiling for foreign direct investment in the fast growing telecommunications and insurance sectors.
It also promised foreign funds easier registration rules and a higher investment ceiling in the country's debt market.
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