The rupee trimmed losses on Thursday as the stock market pulled back from a sharp fall, after the unit dropped to its lowest in two weeks following exit polls that suggested a weak coalition.
At 10:45 a.m. (0515 GMT), the partially convertible rupee was at 49.84/85 per dollar after dropping to 50.02, its weakest since April 29, but 0.3 percent below its Wednesday's close 49.71/72.
"The rupee has weakened due to the political uncertainties. It is likely to be in a 49.80 to 50.20 band today," said Ashutosh Raina, head of foreign exchange trading at HDFC Bank.
Exit polls indicated on Wednesday the ruling Congress-led coalition slightly ahead of the opposition Hindu-nationalist alliance, but lacking a majority.
Dealers said the stock market would be watched for clues on fund flows. The main stock index fell more than 2.5 percent early, but pared losses to about 1.5 percent down.
A revival in capital inflows since March has pulled the rupee up 4.7 percent from a record low of 52.20. Foreign investors have been net buyers of more than $2.5 billion of shares since the start of April.
The dollar's gains versus majors also weighed on rupee sentiment. The dollar index, a guage of the U.S. unit's performance against majors, was up 0.1 percent.
The yen and dollar held on to some of their strongest levels this week after bleak U.S. retail sales data rekindled worries about the economy, prompting investors to reduce bets on risky assets.
Analysts said the rupee could weaken in the near to medium term due to political uncertainties, but in the longer term, it was likely to appreciate.
"We are positive on the INR from a 6-12 months perspective. We expect it to be at 49 by June and 46.5 by December," said Sonal Varma, economist at Nomura in Mumbai.
