Should You Be Worried About the Rising Dollar? - Chart Of The Day 7 September 2018 - Equitymaster

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Should You Be Worried About the Rising Dollar?
Sep 7, 2018

Talking about currency wars and the falling rupee, we did a small exercise to understand the impact of the weak rupee on the markets.

India is a net importer. This means if the rupee is weak, the cost of imports increases and value of the export decreases - resulting in a widening current account deficit.

High Imports + Weak Rupee = Widening Current Account Deficit.

A high current account deficit also impacts the government's spending power.

Also, companies which import raw material witness pressure on their margins and profitably.

So, this looks quite negative on the face of it. So, it's not surprising that markets get volatile when the currency depreciates.

Look at Indian rupee against the dollar from 1990. It has deprecated at a compounded annual rate of 5%.

Yes, the dollar has been on a winning streak from the beginning.

And despite that... the BSE Sensex has returned 14% compounded annually since 1990.

Thus, the falling rupee can bring volatility to the market in the short-term. But in the long-term, our market should be fine.

This is exactly what I keep in mind when picking stocks for Smart Money Secrets subscribers. I cut out the noise of short-term disruptions and look at the long-term picture beyond.

Data Source:

This Chart Of The Day was published in The 5 Minute WrapUp - I Don't Worry About the Turmoil in the Global Markets and Neither Should You

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