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The winners and losers of depreciating rupee trend

India is one of the major exporters of IT services and therefore this sector is very sensitive to USDINR fluctuation.

March 23, 2020 / 02:12 PM IST

Gaurav Garg

In the last month, we have witnessed weakness in the rupee and this has been raising concerns across the country.

High demand for greenback due to COVID-19, a sluggish domestic economy and other fiscal and macroeconomic headwinds have weighed on the rupee.

The falling rupee is both boon and bane, beneficial for a few sectors and adverse for others. Export-oriented businesses such as IT, Pharma are benefiting from this situation whereas import oriented sectors like petroleum, electronics, metals and minerals will have to face adverse effects.

Generally, a falling rupee encourages foreign investment in India. However, the global fear of the coronavirus pandemic, which has stalled the growth and economic activity across the globe, has forced an exodus from FIIs.

India is one of the major exporters of IT services and therefore this sector is very sensitive to USDINR fluctuation. All the companies in this sector which have a higher amount of their business overseas go for hedging their positions and therefore only their unhedged position is vulnerable to the movement in the dollar rate. Generally domestic IT companies hedge 30 percent of their receivables, in many cases we can see natural hedge due to offshoring too.

The pharmaceutical industry is another major beneficiary as a big chunk of their business is derived from supply to US generic markets. The unhedged position of pharma companies in this scenario helps them to post increased earnings.

Under normal circumstances, i.e. depreciating rupee with stable global demand, auto ancillary benefits a lot in India as auto and ancillary sector derives almost 60-70 percent revenue from overseas business. However, just like in case of foreign investments, the auto ancillary sector is also seeing a downtrend despite positive cues on the currency front.

On the flip side, the aviation sector and oil and gas marketing companies will suffer due as crude oil is their main input which is dollar-denominated. These companies have adverse impact due to weaker rupee as they have to pay more rupees per dollar.

The same phenomenon can be seen in the paint industry where crude oil and titanium is 50-60 percent of raw materials which are dollar-denominated.

Meanwhile, about 85 percent of the inputs of the metals and mining sector are dollar-denominated.

(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Moneycontrol Contributor
Moneycontrol Contributor
first published: Mar 23, 2020 02:12 pm

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