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Here is How A Weak Rupee Will Affect Your Fairness Investments

The Indian rupee on Tuesday dropped to the psychologically important mark of 80 against the US dollar, taking its year-to-date fall to about 7 per cent. It hit a low of 80.0175 in early trade compared with the previous close of 79.9775 on Monday.

Why Is Rupee Falling?

FPIs have been pulling out their money from India and moving to the US for safe haven investments amid global uncertainties and tight monetary policy by the US Federal Reserve.

Bhavik Patel, senior commodity/currency research analyst at TradeBulls Securities, said: “Foreign investors are making beeline for US Treasury yields and US Dollar as US Fed is on aggressive rate hike path. The interest rate in the US is attractive compared to other economies as not only US Fed has started on the path of hiking rates first but also has hiked the highest in any developed economy. This makes their treasuries and currency attractive. This has affected all emerging market currencies like Rupee and we have seen FIIs selling relentlessly as there hasn’t been any recovery in Rupee. Selling pressure from FIIs has impacted individual stocks and mutual funds’ returns. Rising Dollar value makes it less attractive for FIIs to invest in India.”

The fall is also attributed to surging crude oil prices and general dollar strength in the past few months.

Depreciating Rupee – Good, Bad, or Ugly?

In simple terms, a depreciating rupee would mean, that buying something from outside India becomes costlier. There is a flip side too. By the same logic, if one is trying to sell goods and services to the rest of the world (especially the US), a falling rupee makes India’s products more competitive.

What’s Its Impact on Your Equity Investments?

Import Heavy Companies Under Pressure

The companies which are importing raw materials dominantly from overseas are getting more impacted because of the weak rupee. Additionally, companies having foreign borrowing are also more susceptible.  So, investments in such companies are likely to not give you good returns at a time when the value of the Indian rupee against the USD is falling.

V K Vijayakumar, chief investment strategist at Geojit Financial Services, has said the rupee depreciation is good for export sectors, particularly IT (information technology) companies. Pharmaceutical exporters, speciality chemicals and textiles will also gain, he added.

Positive Impact on Export-Related Companies

On the other hand, export focussed companies (for example IT Services) benefit since a large part of their earnings are in foreign currency (mostly USD).

Vijayakumar stated that sectors such as fast-moving consumer goods (FMCG), metal, and banking, among others, may see a negative impact at a time when the value of the rupee is on a decline.

FPI At a Loss

“The movement INR -USD has multiple ramifications for the investors. The most visible one is the impact on foreign portfolio investors (FPI) portfolios as depreciation in INR leads to reduced value for them thus impacting their returns and attractiveness of Indian Equities which may lead to their outflows,” Abhishek Dev, Co-Founder and CEO Epsilon Money, said.

Foreign Stock Investments

If you have your existing investments in US stocks, you will benefit from the fall in the Indian rupee’s value.

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