Rs.70 THE NEW NORM FOR INDIAN RUPEE?

about 5 months ago
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There is a sense of unease on Dalal Street. And also on Mint Street. Stocks as well the rupee are down in the red and the mood is that of great uncertainty.

The rupee crossed the Rs.72-mark yesterday and the plunge was arrested only on account of RBI intervention. Though Finance Minister Arun Jaitley said that there was no need for a knee-jerk reaction because of the rupee movement, his words could not really soothe the frayed nerves.

Stocks, not just in India but all around Asia too well down as fears have escalated over the impending trade tariff war getting tougher. The public comment period for proposed tariffs on an additional $200 billion worth of Chinese imports ends today and that means tariffs could go into effect shortly afterward.

Also least we forget, the consistent fuel price hike is getting truly worrisome too. Today also, the price of petrol in Mumbai was hiked by the OMCs by 48 paise; it now stands at Rs.87.39/litre. This, plus the falling rupee is causing a lot of worry.

NRIs might be celebrating the falling rupee and so will the exporters. This day-to-day new low being hit by the Indian rupee vis-à-vis the US dollar is not good news.   And it is not expected to stop here. 

For me and you, who do not have any forex earnings as such, but if planning on a foreign holiday, well, the expenses just got further inflated. And yes, all those ‘imported’ goods– electronics, luxury goods, cosmetics and other services also got more expensive. If you have children going abroad for studying, that education bill too got further inflated.  But this is not all. Whatever happens in India Inc, also directly or indirectly does affect us, in many ways.

The good news is that export oriented sectors like software, handicrafts, gems, jewellery, industrial machinery, chemicals, garments and, leather goods would be celebrating the falling rupee. It is good news also for the hotel sector as over 60% of revenues in the luxury hotel segment are in foreign currencies. There will also be a huge outflow of FPI and every time rupee depreciates, they tend to lose.

Take a look at the below given chart by SBI Research:

But India is not an export driven economy like China or Korea and thus the benefit is not exactly spread right across the board. The depreciating rupee means illness for pharma companies too as they too have substantial outstanding FCCBs, meaning higher interest outgo and repayment issues. Keep a watch on Sun Pharma Cadilla, Wockhardt, Matrix Labs. In the fertilizer sector, imports of Diammonium phosphate (DAP)  will get costlier, meaning either imports could go down or their costs could rise thus impacting overall agri production and costs. OMCs are undoubtedly the worst hit -  HPCL, BPCL and IOC as falling rupee increases under-recoveries on domestic sale of diesel, LPG and kerosene at controlled prices. Another sector to be hit badly is the aviation sector, whose one third operations - rentals of leased aircraft, maintenance, spare parts and salary paid out to foreign crew, all this is paid in dollars. This means more rupees will go out.

One man’s pain is the other man’s gain. Such is life or else how do we keep the balance of life intact? That’s some philosophy but reality is that currently, things look pretty precarious for India Inc. The pull of gravity is not just on the rupee….

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