My Latest Recommendation Will Benefit from Rupee @ 70

Aug 29, 2018

Kunal Thanvi, Research analyst

1 May 2013 - Rs 53.66/US$

28 August 2013 - Rs 68.80/US$

That's a 22% depreciation of the rupee in just 4 months.

Now, let's look at 2018.

1 January 2018 - Rs 63.68/US$

28 August 2018 - Rs 70.57/US$

That's 10% depreciation of the rupee in 2018.

As the currency touched 70-mark, comparisons are in full swing to the 2013 situation.

Remember, back in 2013, India was a part of 'fragile five' emerging markets along with Brazil, South Africa, Indonesia, and Turkey.

Back then these countries were very close to economic crises. Each of them had a significant current account deficit problem (imports more than exports).

To add to that, there was a political uncertainty. Not to mention, high inflation, slower growth, and larger external deficits...

Fast forward to 2018.

The rupee touched Rs70/US$ mark. Certainly, crude oil prices have played a big role. Oil prices have increased by more than 14% in 2018. With this, India's trade deficit hit a 5-year high of US$ 18 billion in July.

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To add to that, growing global uncertainty and trade wars have put further pressure on the currency.

Similarly, rising interest rates in the US is another concern.

FIIs (foreign institutional investors) remain net sellers in 2018. This puts further pressure on the current account deficit.

So, are we heading towards another crisis-situation like 2013?

The answer is No.

Our economy is in better shape today. Growth is stronger. Inflation is lower. Also, the fiscal deficit is smaller compared to 2013.

First, let's look at growth.

India's GDP grew at the fastest pace in seven quarters at 7.7%. This is due to robust performance in manufacturing as well as service sectors.

Back in 2013, this was not the case. The GDP growth was under 6%. There was an environment of 'policy paralysis'. This uncertainty hammered business climate and impacted private investments.

The second point is inflation.

Today, inflation is much lower than it was in 2013. Back then, consumer price inflation was above 10%. Currently, it is in the 4% to 5% range.

Why is inflation important? When inflation is high compared to other countries, the rupee declines in order to maintain competitiveness.

Last but not least, the fiscal deficit numbers.

Back in 2013, it was 4.9% of the GDP. Whereas, currently it is 3.5% of the GDP. This is expected to further decline to 3.3% in FY19.

Also, the current account deficit was 4.5% of GDP back in 2013. This is 2.4% now. Sure, it has deteriorated a bit. But, it is still better compared to 2013. Forex reserves are also higher, close to US$ 400 billion. This was below US$ 300 billion in 2013.

Sure, there are some headwinds in the offing in the form of rising crude oil prices, trade wars, and tightened monetary policy. But India is on a strong footing.

Rupee depreciation is more to do with the uncertainty surrounding Turkey crisis and strength in the dollar index.

Nevertheless, the rupee under pressure in the near term could benefit export-oriented businesses. Also, the rupee depreciation will further improve global competitiveness for Indian companies.

Certainly, this month's Smart Money Secrets recommendation is will benefit from the rupee depreciation. The company derives around 65% of the revenue from exports. The icing on the cake is focused entry into the B2C segment, which provides a long runway for future growth.

I believe, the potential upside in this stock is 79%.

If you're a Smart Money Secrets subscriber, read the detailed report here.

If not...you can get the report by signing up here.

Recently, India became the sixth largest economy in the world. India is expected to pip Britain to become the fifth largest economy in the world next year.

From fragile five to potentially the fifth largest in the world. That should tell you something about the Indian economy. Perhaps, the elephant has started to run.

Chart of the Day

As I mentioned earlier, the Indian economy is on a strong footing. I wanted to check how India performed compared to the erstwhile 'fragile five' countries.

The MSCI or Morgan Stanley Capital International index is used to measure equity market performance in global emerging markets. It is used as a common benchmark for global stock funds.

In 2018, the MSCI India index outperformed other indices.

India Outperforms Former Fragile Five Peers

In 2018, the MSCI India equity index is down marginally by 0.4%.

Whereas, other countries which were part of fragile five are down in the range of 15-52% The worst performer is obviously the MSCI Turkey, which tanked by whopping 52% in 2018.

Certainly, global investors have recognised the strength of the Indian economy.

Talking of strength, the Indian economy is showing signs of economic recovery.

For example, capacity utilisation is picking up. IIP and GDP numbers are improving. Indian corporates are getting back to their capex plans.

Tanushree's StockSelect recommendation this month, is firmly poised to gain from the revival of capex cycle.

If you don't have access to StockSelect, you can sign up here...

Regards,

Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

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1 Responses to "My Latest Recommendation Will Benefit from Rupee @ 70"

Ravindra Duvvuri

Aug 30, 2018

Thank you, Kunal Thanvi, for presenting a positive and refreshing view of the Indian Economy. We have been so conditioned to reading only negative and cynical views of the Indian economy from some of your other 'experts' at Equitymaster.

We would like more of such articles telling us what is going right for the economy, instead of only telling us what is going wrong with it.

Ravindra Duvvuri

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