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Rupee at 70, what should you do?
Publish Date: 16th August, 2018
As India celebrates its 71st Independence Day, the Indian rupee breached the 70-mark for the first time ever in its history. This record low level was a result of economic problems in other emerging countries like Turkey and China. With the rupee navigating unchartered waters, is it a time to worry?
Let’s find out.
1) No need to panic
The bad news is that the rupee has touched 70. But the good news is that it is not time to panic yet. The Indian economic affairs secretary, Subhash Chandra Garg has said that the fall in the rupee against the dollar was due to the contagion effect. It means the problems in one country affect other countries as well. Following the downslide in the Turkish Lira on Tuesday, the rupee breached the 70-mark for the first time ever. And with China using the tactic of currency devaluation to boost its exports, the Rupee slide has continued. However, as long as the depreciation is in line with other currencies, there is nothing to worry, according to the Indian government.2) Countermeasures by the RBI
The Indian rupee has lost over 7.2% during this year alone according to a report by the Economic Times. This makes it one of the worst performing currencies in the market. But in the last few days, the economic crisis in Turkey has created further problems for the rupee. In response, the RBI stepped in and took countermeasures.It sold dollars through the public sector banks in order to prevent a further slide in the rupee. Surprisingly, the Sensex ignored the rupee landslide and gained as much as 207 points on 14 August as a result of sustained buying support.
Click here to read about India’s correlation to global markets
3) What happens to IT and pharma companies
A weak rupee is not all bad news. Some sectors in the Indian economy do benefit when the rupee reaches lower levels. The IT and pharma sectors are a couple of examples. IT companies like Tata Consultancy Services (TCS), Infosys and Wipro earn nearly 60% of their revenues in US dollars. As a result, a depreciating rupee has a positive impact on their profit margins. Similarly, pharma companies like Sun Pharma, Lupin and Ajanta Pharma which have a large exposure to the US market stand to benefit.4) State of import-dependent businesses
While exporters gain from the rupee fall, importers in the country will be hit. This is because the cost of getting goods and equipment to India would increase. As the rupee weakens, an importer would have to spend more Indian rupees in order to purchase the same product that he bought at a lesser price previously. Oil companies are generally hit the hardest when the rupee value declines.Click here to find out how rising crude oil prices could impact the rupee
Conclusion
The rupee’s response to the contagion effect has not been anything too surprising. It mirrors the currency patterns of most emerging nations in wake of this sudden crisis. As of now, the government has taken a bold stance and said there is nothing to worry. However, with high crude oil prices and global trade tensions brewing, it is important to monitor the rupee’s progress and see how it pans out in the near future.
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