Down goes the rupee - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Down goes the rupee

Mar 4, 2009

Rupee's free fall
The rupee has had a rough ride so far and the deepening global financial crisis has only accelerated its fall. The rupee yesterday hit a low of 52 per US dollar as the weak stock markets and fears of capital outflows took centrestage. FIIs, who had contributed to the blazing journey of the BSE-Sensex to 21,000 levels, have been pulling out money from Indian equities in droves ever since the crisis erupted. Besides this, the deteriorating fiscal deficit has been another reason that has exerted considerable pressure on the Indian currency in the past one year. Thus, a deadly cocktail of unenthusing economic data, importers buying dollars in anticipation of further weakness and declining stock markets have been taking their toll on the rupee. Interestingly, another phenomenon that is being witnessed is that exporters are cancelling orders when the rupee was much stronger, thereby spurring the demand for dollars and contributing to the fall in the rupee. Obviously, those companies who rely heavily on imports and have large amount of foreign currency debt on their books will find themselves receiving the short end of the stick.

JP Morgan emerges unscathed
While most of the global banks are reeling under the losses suffered as fallout of the subprime crisis, JP Morgan in this bleak environment has something to cheer about. As reported on Bloomberg, the bank managed to generate US$ 5 bn in profits during the worst year in Wall Street history by trading over-the-counter fixed-income derivatives. JP Morgan, which is the largest US bank by market value had reported a total profit of US$ 5.6 bn, which is commendable given that many of its peers were deep in the red.

One of the reasons attributed to the same was that after the debacle of many investment banks, there were less trading partners to deal with in the derivatives markets. Thus, JP Morgan could capitalise on this opportunity as it was also able to enjoy better pricing power. But more important than that, it was probably their focus on quality that yielded the desired results. Whatever be the case, the bank is certain to be the envy of its beleaguered peers.

Standing by Corus
The Tata Group has had its mettle tested in the past one year what with terrorist attacks, expensive acquisitions and land disputes taking their toll on the companies' performance. One of these massive acquisitions was that of Corus which was taken over by Tata Steel for US$ 12 bn in 2006. Since then many have questioned the logic of this deal citing it as too expensive. The fact that the global economy has been deteriorating has only further compounded problems.

In fact, Corus has been eating into the profits of Tata Steel on a consolidated basis and this was amply demonstrated during 9mFY09, wherein EBDITA margins for Tata Steel on a consolidated basis stood at 15%, a far cry from the 43% margins posted by the company on a standalone basis.

Despite this, Tata Steel continues to stand by Corus and the MD Mr. Muthuraman has reiterated that Corus has been a good buy as the latter's fundamentals are sound. He further went on to add that Corus' poor show was nothing to do with its fundamentals and that it has been a victim of the meltdown in the global economy just like many global steel players. While high administrative and staff costs and absence of raw material security have hampered performance, the silver lining in the cloud has been the geographical diversity, good product mix and skilled expertise that Corus has lent to Tata Steel. Eventually, Corus may start contributing to Tata Steel's overall performance, but for the time being the pressure persists.

Equitymaster requests your view! Post a comment on "Down goes the rupee". Click here!


More Views on News

Top 5 Stocks Mutual Funds Bought and Sold in March 2021 (Sector Info)

Apr 16, 2021

A look at what India's top equity mutual funds bought and sold in March 2021.

Kotak India EQ Contra Fund: Eliminating Emotional Bias (Outside View)

Apr 16, 2021

PersonalFN's analysis on the features and performance of Kotak India EQ Contra Fund.

A Warning About Bubbles (Fast Profits Daily)

Apr 16, 2021

Those who don't learn from financial history are doomed to lose their money.

11x Bankruptcy to Bluechip Stock: A Rare India Revival Story (Profit Hunter)

Apr 16, 2021

There is no stopping this 11-bagger stock from significant upside.

Market Crash: Picture Abhi Baaki Hai? podcast (Views On News)

Apr 15, 2021

Rahul Shah on whether another big crash is likely and the ideal strategy to counter it.

More Views on News

Most Popular

Derivatives Made Easy

A detailed understanding about derivative markets, types of derivative contracts and how you can profit from them.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

An India Revival Stock I'm Bullish On... (Profit Hunter)

Apr 9, 2021

This could take India to the position of 3rd largest economy.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Apr 16, 2021 (Close)