Weakness in the Indian rupee is unlikely to go in a hurry. Rupee has been under pressure since the US Federal Reserve pulled the plug on its quantitative easing program and subsequently hinted at early rate-hike in FY15. This has set the dollar in a strong rally against major currencies with the dollar index reaching its highest level since March 2006.
As if this was not enough, even the domestic factors seem to be working against the rupee. The country's fiscal deficit has already reached 99% of the full year target within the first eight months of FY15. Poor tax revenue collections by the government on account of tepid economic growth is acting as a headwind in achieving the full year fiscal deficit target of 4.1% of GDP announced earlier. This is likely to exert further pressure on the rupee. The consumer price inflation is expected to rise in the January-March 2015 period due to the low base effect. Thus the combination of rupee depreciation and high inflation together is likely to make the case stronger for delay in rate cut by Reserve Bank of India (RBI). This can act as a dampener for corporate India in the short run.
To add to this, the government has already rolled back the excise duty concessions for the automobile and consumer durable industries in order to shore revenues. With only three months left in FY15, funds cannot be raised through disinvestment. So the government may have take refuge by cutting down capital expenditure spends to meet its fiscal deficit target. This is likely to adversely impact the liquidity of infrastructure companies. Thus sliding rupee may affect the financial health of a host of industries even as sectors such as IT, pharma and textiles stand to benefit from increased export realizations. Notwithstanding as the long-term fundamentals for the economy remain firmly in place, the macro-economic conditions are expected to return to more benign levels in future.