The rupee on Tuesday touched a fresh record low of Rs 71.37 against the US dollar for the second consecutive day in a row, and experts feel that the fall is not over yet and we could see fresh lows for the currency in the offing.
Most experts are penciling in a near-term target of Rs 72-73 per US dollar for the rupee. Both local, as well as global factors, are weighing on the currency.
Globally, nagging concerns over rising crude oil prices and trade war continue to impact the forex market sentiment. Back home, the heightened risk associated with the swelling current account deficit due to rise in oil prices have contributed to the volatility.
“Rupee breach beyond Rs 71 per US dollar is not a surprise. The causative factors like the deficit, growth concerns, oil, FII outflows, etc. have been much commented on in the last few months,” Anand James, chief market strategist, Geojit Financial Services told Moneycontrol.
“While the rupee took 8 months since the start of this year to depreciate from 64 to 71, the depreciation of 2013 from 53 to 68.8 happened in just 5 months. The ongoing depreciation has the room till 73, but the journey till there is less likely to be steep, as ongoing trade war tensions and a higher likelihood of only a gradual US rate hike will ensure that we may not have any runaway rally in US dollar or weakness in rupee,” he said.
James further added that this suggests stocks’ dips on account of weak rupee will be an investment opportunity. But, only as long as oil doesn’t push above USD 80 per barrel.
Impact on India Inc.:
Rupee depreciation will directly impact IT and pharma sector companies which earn most of their revenues in US dollars. However, some of the companies where cash flows are hedged may not benefit as much as the other players in the sector does.
On the other hand, companies which are dependent on imports especially the companies in oil and gas space will be adversely affected. In certain sectors, cross currency movements may impact profitability where imports are from countries where the currency has depreciated more than that of India, suggest experts.
For example, companies importing raw materials from China may get benefitted as Chinese currency, Yuan, has lately depreciated more than rupee.
“Sectors where there are huge foreign currency loans - say infrastructure will get negatively impacted. Metals, too, have huge foreign currency loans but their exports may act as automatic hedge,” Vineeta Sharma, HOR at Narnolia Financial Advisors told Moneycontrol.
“Current fall in rupee is more to do with global issues, but if the crude price remains elevated despite deteriorating emerging market trade then it will be negative as India is large oil importer,” she said.
Stocks to get impacted the most: Analyst: Vineeta Sharma, HOR at Narnolia Financial Advisors
Some companies that may get positively impacted are Persistent Systems, Sun Pharma and Suven Lifesciences as sales are primarily exports and their operating business environment is also getting better.
On the negative side, airline companies like InterGlobe Aviation will get negatively impacted as fuel cost rises on account of INR depreciation.
Companies with high foreign currency debt like Adani Port where 50 percent of the debt is in foreign currency will be negatively impacted.
Analyst: Ritesh Ashar, Chief Strategy Officer at KIFS Trade Capital OMCs: Negative Impact
For companies like BPCL and HPCL, crude oil is a raw material which they will have to buy at the higher price and their final selling products are various refined products like petrol, diesel etc.
The prices of these refined products may not necessarily increase by the same proportion as of the crude oil. As a result, the refining companies will start losing money.
Telecom companies: Negative Impact
Companies like Bharti Airtel, Tata Steel, and Reliance Communication have foreign debts. Considering the fall in the domestic currency, the cost of financing will increase which will impact the profit margin of the company.
IT & Pharma: Positive impact
The positive impact will be seen in exporting companies and the majority of IT and Pharma companies are depended on their exporting business. IT stocks like TCS and NIIT Tech will be largely benefitted as their forex exposure are quite higher than the peers.
Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions. Source: Moneycontrol.com