Dec 2, 2011|
Fall of the rupee - as 'bad'as it gets?
The last few days have seen rupee falling to all time lows against the dollar. The question one may ask is: Why is rupee declining against dollar despite India doing better than U.S in terms of economic growth? While a part of this could be attributed to European debt crisis that led to relative appreciation in dollar (US$ rise against Euro), the rest of the damage was done by weak domestic fundamentals - rising inflation, interest rate hikes, a high fiscal deficit and FII outlows.
What it implies?
Apart from the direct hit on privileges like foreign education and foreign travel, the general public is going to be impacted in many round about ways.
To start with, the trend is bad for Indian companies that have an unhedged exposure to short term foreign debt liabilities, a major portion of which is denominated in dollar. This is because now these companies will have to shell out more rupees towards principal and interest payments. The fall of rupee could be double whammy for some companies that import raw materials as cost of imports (in rupee terms) will also increase.
The trend has already been witnessed in companies in energy sector. Despite some weakness in the crude prices, the oil and gas companies had to suffer due to relatively higher amount of rupee shelled out for dollar denominated crude and imported liquefied natural gas (RLNG). To remain viable, these companies will need to increase the end prices, the brunt of which will be borne by the end consumer. Take for example the increase in the cost of Compressed Natural Gas (CNG), Piped Natural Gas (PNG) and Lubricants.
Besides, a slide in rupee erodes value of Foreign Institutional Investors (FIIs) investments and can lead to FII outflow. This will reflect directly on the performance of stock markets, thus leading to losses for retail investors.
What to expect?
The reasons that have triggered the depreciation of rupee- the weakness in the global economy, especially the European debt crisis and weak domestic fundamentals suggest that it may take a little long before the decline is rupee is arrested.
Is it all negative?
The decline in rupee will be good for companies that are net exporters, tourism industry (international tourism), IT induatry, textile firms, gold investors and individuals who have invested abroad (in real estate/global funds etc.)
Damage Control measures
If Government ensures long term investment of foreign funds (FDI), it will take a lot of pressure away from rupee and spare it from speculative tendencies and FII vagaries. We believe that FDI in retail is one such step in the desired direction. However, this is just the beginning. For this to become possible, we need to make some long term policy reforms so that foreign players are enticed enough to invest in domestic sectors.
More Views on News
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.
Aug 24, 2017
With Lord Ganesha's attributes and teachings, awaken your inner-self and inculcate these financial habits for a sound future.
Aug 24, 2017
Online shopping if done sensibly can help you save money and carries many other advantages.
Aug 24, 2017
Kelly, Mattis, McMaster, Cohn, and Mnuchin are in charge. But these Pentagon bureaucrats and Wall Street hustlers may be worse than a loose-cannon president.
Aug 23, 2017
Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407