X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
The 'Dragon' finally bows! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 25, 2005

    The 'Dragon' finally bows!

    After months of intense speculation and discussion, China finally yielded to global pressure and let the Yuan appreciate, albeit by a marginal 2% from its decade long peg to the dollar of 8.28 to the current 8.11. While the rate of appreciation is not significant, it assumes importance in the sense that it signals possibilities of a further appreciation in the pegged currency. The Chinese have also indicated that the Yuan will now be pegged to a basket of currencies and not just the dollar. In this write-up, we will take a look at the global implications and what this means for India.

    Global implications
    The revaluation impact will be beneficial to the Asian currencies in the sense that these Asian nations will now be willing to let their respective currencies strengthen, with China having finally initiated the move. Japan will also stand to benefit as Japan's exports make up 15% of China's imports. Overall, it will mean that Asian exports will now be more competitive. The US had been consistently reiterating the fact that the Chinese currency was undervalued, consequently hurting the US exports. The US is already facing the problem of swelling twin deficits, which was the leading cause of the dollar's huge depreciation against the global currencies towards the end of 2004. Therefore with this latest move, the US is likely to ease the pressure on the Chinese government to a certain extent.

    Indian implications
    RBI governor, Y.V Reddy had in an interview mentioned that a revaluation of the yuan was unlikely to have an adverse impact on India's economy and might even help trade competitiveness. It must be noted that the Indian currencies as well as other major Asian currencies were losing out on the exports front as the decade-old Chinese peg led to cheaper exports from the Chinese mainland. The rupee has been on an appreciating trend since the end of 2004, chiefly driven by FII inflows and even at times influenced by the rise of the global currencies against the dollar. However, RBI intervention kept the rupee from appreciating at a steep pace. Therefore, consequent to the Yuan revaluation, appreciation of the rupee is not likely to have an adverse impact on India's exports. However, it will mount the pressure on the RBI to intervene in case of a very fast rise in the rupee.

    Sectoral impact
    Oil:In the recent months, oil prices have skyrocketed touching the US$ 60 per barrel. Since, India imports around 70% of the oil that it consumes, any appreciation in the Indian currency is beneficial to the oil firms, which will now have to buy dollars at a cheaper rate to import oil.

    Software:Since the Chinese currency has appreciated by only 2%, software firms do not expect the revaluation and consequently a stronger rupee to adversely impact their business. However, it must be noted that severity of the impact will depend on the extent of the exposures and how well the software companies have hedged the same.

    Commodities: A stronger Yuan would mean that, for China, imports will be cheaper. This means that the demand for steel and other commodities will be on the rise. However, considering the fact that China is already facing a situation of a supply overhang and is in fact a net exporter of steel, textiles, chemicals and other commodities, it really remains to be seen how the Indian commodity companies are likely to be benefited by the same.

    Our view
    It must be noted that the steep appreciation in the major currencies against the dollar after the Yuan revaluation was a knee-jerk reaction influenced more by the surprising element of the move rather than the scale. However, since then the dollar has recovered its losses as the focus once again shifts to the economic fundamentals. While the latest move by China is not likely to significantly impact India, it remains to be seen whether China will go in for a further revaluation in the future and the extent of the same. However irrespective of the Yuan revaluation, if India Inc. continues to show strong growth and FIIs continue to pump in money into the economy, rupee is poised to get stronger. Therefore, it all boils down to what risk management measures, companies are adopting to hedge against the same.

     

     

    Equitymaster requests your view! Post a comment on "The 'Dragon' finally bows!". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 (Close)

    MARKET STATS