In 2007, the Indian rupee could do no wrong, racking up a gain of 12 percent. But when it rolled over into a new year, Indian stocks started sliding and so did the rupee.

The currency tumbled a horrid 8.7 percent in just five months.

Of course this was when the subprime credit-crunch problems were in full force, which caused risk aversion to set in. Investors started selling out of some emerging markets, like India, and repatriating their money.

That meant selling rupees and buying back their home currency — sure to deflate the rupee.

Now the rupee sits at a 13-month low. And I think that the worst of the credit crunch is behind us, and whatever remains of it has been factored into both stocks and currencies.

I think you’ll find that money will shortly start returning to India and its rupee in the months ahead.

After all, how many countries are growing at 8 percent? Not many. Right now, India has the second-fastest growth in the world, second only to China. Since 2003, the country has grown at 8.7 percent and its central bank forecasts 8.5 percent in the 12 months through March 2009.

It’s estimated that Indian corporate earnings are growing at an average of 20 percent a year. That’s high.

As a result, you’ll see money return to the Indian stock market from abroad just as soon as investors feel the coast is clear. I think you’ll see this happening in the coming months.

In fact, some of the major Indian manufacturers are already predicting a huge comeback for the rupee. JSW Steel, the third-largest steel maker, predicts that the rupee will gain a full 8 percent in the next year.

One thing’s for sure. When money pours into India, it pours in quickly. For instance, the Bombay Stock Exchange Sensitive Index (Sensex) was up 47 percent last year. The credit crunch scare has caused it to pull back 16.4 percent so far this year.

When their stock market had that huge gain, the rupee also had its biggest gain since 1974.

There’s more going on here. The Indian government put in curbs nine months ago that limited the amount of borrowing. The point was to slow the inflows into the country so that it didn’t boost the rupee too quickly and hurt India’s exporters.

Now that the rupee has fallen so much, so quickly, I think we’re past hurting the exporters. In fact, they’ve gotten a huge break lately.

Since the rupee took a dive so quickly in such a short period of time, I think you’ll see the government do away with those curbs shortly. That will allow a greater inflow of capital into India much more easily than in the past nine months, since the curbs were put in place.

In fact, as we speak, there’s about $20 million of overseas money that Indian companies need to bring home but can’t without the permission of the central bank.

Not $20 million total, but $20 million for each company. If they get that green light, there could be a flood of money back in to boost the rupee — once these curbs are lifted.

I think they’re going to get this permission shortly because that’s one of the easiest ways to stop the bleeding on the rupee. It would be an easy first step.

Also keep in mind that inflation is still on the rise in India. That’s a good thing from a currency perspective. In fact, inflation unexpectedly rose recently to the highest level in 3½ years, with wholesale prices gaining 7.83 percent from a year earlier.

That will have to be dealt with at some point soon, and that probably means raising interest rates once again, also good for the rupee. I say they’ll have to deal with it soon because their target for inflation is 5.5 percent right now. Inflation is well off of this target.

There are many reasons why the rupee will come back. The first trigger will most likely be when the curbs are lifted. However, if they talk seriously about an interest rate hike, that’s enough to do it as well.

Keep in mind that the overnight lending rate is already at 7.75 percent. So this currency has a nice yield to it and that will probably only increase. So investors will salivate to get that yield as soon as they’re ready to dip their toes back into the water.

In fact, someone buying their 10-year bond right now would get 7.95 percent interest.

The key is to get in before the tidal wave of money hits. That tidal wave will hit as soon as those curbs are lifted. You’ll want to be in just before that.

And finally, if you want one more reason to buy the rupee in the upcoming months, Prime Minister Singh is really going to want to get inflation under control because an election has to be held before May 2009. and I’m sure he wants the best chance at being elected.

If he’s tough on inflation and cools prices in India, he may stand a good chance. Believe me, this is important when about half of India’s 1.1 billion population lives on about $2 a day.

So what’s the sign to enter the rupee? The key is to wait until the Indian government does away with those curbs. Then it will be time.