Fall of the rupee - as 'bad'as it gets? - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

Fall of the rupee - as 'bad'as it gets?

Dec 2, 2011

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.


Equitymaster requests your view! Post a comment on "Fall of the rupee - as 'bad'as it gets?". Click here!

  

More Views on News

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Sundaram Bluechip Fund: Will Hold the Stable Horses (Outside View)

Sep 18, 2020

PersonalFn briefly outlines the newly launched NFO note HSBC Corporate Bond Fund.

Wait! Don't Chase Smallcaps Now (Profit Hunter)

Sep 18, 2020

Let the markets take a breather before you jump in.

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

A Contrarian View on Whether You Should Load Up on Small Caps podcast (Views On News)

Sep 17, 2020

Rahul Shah discusses whether the SEBI circular is the perfect time to start investing in good quality small caps

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

I Recommended this Stock over Page Industries because it's Relevant to Doubling Your Income (Profit Hunter)

Sep 7, 2020

Things are not often what they seem in the market and how you can take advantage of this.

The NASDAQ Whale Could Harm Your Portfolio (Fast Profits Daily)

Sep 7, 2020

The discovery of Softbank pushing up prices on the NASDAQ will cause volatility in the market. Stay alert!

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 18, 2020 (Close)

MARKET STATS