India is holding out as favoured investor destination. The capital inflows remain strong even as the economy has been waiting for increase in capital inflows.
This will have implications for monetary policy and the rupee.

The new year may well spell out to be one of the best years for Indian economy. With hopes of a more than 7.5 per cent growth rekindled, traders had no dilemma deciding their position on the Indian currency. 
They sold dollars expecting the rupee to appreciate on the back of sustained capital flows though equity markets remained subdued.
The rupee closed the day at a month's high of 46.32 gaining 0.65 per cent.
Brokerages see the rally in the rupee to continue in the coming months with Nomura expecting the US dollar to be around Rs 45.8 by March 2010.
Barclays Capital projected US dollar to move towards 45 in the same period.
Although the currency appreciation is good for the equity markets, from a regulatory perspective, high volatility or steep appreciation of rupee could raise concerns, the reason why RBI is closely watching the capital inflows coming into the country.

Shymala Gopinath, deputy governor of RBI, said, “Rapid and volatile capital inflows and outflows can present policy challenges in terms of exchange rate overshooting, asset price volatility and financial instability."

Even as this promises high investor interest that will strengthen the economy, it will be interesting to see what level could prompt the central bank to intervene.