Here's a silver lining to the rupee's hard run against the dollar of late - thanks to the strengthening domestic currency, India's Gross Domestic Product (GDP) has topped $1 trillion, making it the 12th country to achieve the milestone.

Indian GDP at the current price level is Rs 41 trillion.

With the rupee appreciating to below 41 against the US dollar, Thursday (April 26) was the first day for the economy to be a trillion-dollar economy.

US, Japan and China are some of the other countries in the elite 1 trillion club. The rupee, which is trading around 40.76 to a dollar, has appreciated about 8.4 per cent this year. Swiss investment firm Credit Suisse which released a note on the Indian economy touching the 1 trillion mark, also pointed out that stock markets in eight out of 10 countries had risen in the one year after their economies first crossed $1 trillion.

However, India's $944 billion stock market should probably drop because of slower earnings growth for sectors such as autos, banks and cement, before picking up as inflows pick up into fast growing economy.

"Given our outlook... it is likely to go down again in the near future before it sustainably stands above this mark," it said, referring to $1 trillion.

The benchmark BSE stock index has risen about 15 percent from its early April low on good quarterly results and an RBI decision this week to leave interest rates unchanged at its policy review.

Rupee to peak at 40/dollar in 2007

The rupee is likely to peak at 40.00 per dollar in 2007, although its current rally may be running out of steam after a rise of more than 8 per cent this year, a Reuters poll showed on Thursday.

The partially-convertible rupee hit a nine-year high of 40.60 per dollar on Thursday, driven by foreign portfolio and direct investment as well as overseas fund raising by Indian firms, and is Asia's best-performing currency so far this year.

The median forecast for the rupee among 11 economists surveyed was for a decline to 41.50 by the end of June and to 42.40 by the end of 2007, 4.4 per cent above its close for 2006.

But continuing strong capital inflows into the robustly growing economy were expected to propel the rupee to the psychological 40 level at some point this year and two economists forecast it would break through that barrier to 39.50.

"The appreciation has been much faster than we expected. India is a fairly good bet among emerging economies due to its strong growth, high attractive yields and a hawkish central bank," said Chin Loo Thio, currency strategist at BNP Paribas in Singapore.

"The central bank's strategy to cool inflation via rupee appreciation will continue."

The Reserve Bank of India (RBI) spent much of the past six months intervening to keep rupee gains in check but since mid-March the currency has been rising and traders say intervention has been scaled down substantially.

Analysts say the reason is its intervention, which pumped billions of rupees into circulation, was adding to cash-fuelled inflation pressures, forcing the central bank to adopt a more hands-off approach.

Annual inflation hit a two-year peak of 6.7 per cent in early 2007 but has since cooled to about 6 per cent and analysts expect a further retreat in headline numbers in the next two months. Once that happens, many see the RBI returning to its old intervening ways.