A sharp plunge in rupee value to below Rs 52 per US dollar level may be a bad news for the stock markets and the overall economy, but has also brough cheers to certain segments, experts believe.
Stock markets have fallen sharply and concerns are being raised about a slowdown in economic growth momentum in the backdrop of a sharp rupee depreciation, while worries are also mounting about further surge in inflation. However, a weaker rupee could mean good news for the non-resident Indians (NRIs) and others remitting money from abroad to their families back in India, as also for those having invested in overseas mutual funds and the expats working in India with income in foreign currencies like the US dollar and expenses in rupee.
The rupee on Tuesday hit a record low of Rs 52.73 against the US dollar, as investors exited from riskier emerging markets as well as eurozone assets, and made their bet on dollar -- which is seen as a "safe heaven" at times of crisis. Some recovery was seen in the rupee this morning, but it remained above the 52-level and the analysts believe a further drop was still a possibility. The experts say that there are chances of a fall to as low as 55-level, as emerging market currencies are quite vulnerable to the eurozone debt crisis.
Amid a plunge in rupee value, the stock market tanked today with a fall of over 500 points in the benchmark Sensex during the intra-day trade. But weaker rupee turns out to be good for those who depend on remittances from abroad, as the Indian currency has not only slipped against the dollar, but also against most other major currencies like the euro, British pound, Australian dollar and Kuwati dinar. One US dollar gets a little over Rs 52 now, which is nearly 17 per cent more than what it did at the beginning of the year, similarly the British pound brings Rs 81, (up 16 per cent), euro brings Rs 70.19 (up 17.27 per cent) and Australian dollar Rs 50.90 (up 11.30 per cent).
Besides, for those people who are planning a visit to India now, are cheering as they will get good bargain for their home country currencies here. That gives them more spending power in this country than other favorite destinations like Singapore and Thailand. Each Thai bhat now cost Rs 1.66, which is 12.16 per cent higher than the level at the beginning of this year, while the Singapore currency has appreciated 14.88 per cent against to touch Rs 39.96 per dollar. "A weak rupee makes India a cheaper destination...we are getting a lot of bookings from tourists coming into India as this is the peak season," hotel major Starwood India's Managing Director Dilip Puri said.
Besides, a weaker rupee could also lead to rise in gold prices, as investors tend to shift their focus away from riskier assets like stocks to the bullion market in such scenarios, experts said. This would result in gains for the existing gold investors, but adversely affect the consumers. In general, stock market mirrors the rupee movement, but investors in export-focussed sector stocks, like those from the IT space, stand to gain as these companies are primarily exporters of services to the western market. The overseas earnings of these companies are generally expected to grow, as the value of foreign currencies have appreciated.
However, in the IT sector also, only select stocks stand to gain in the current situation, as the overall global economic situation is not quite jubilant and this would impact the order book position of the domestic software firms. "Investors are concerned due to the global economic scenario and the businesses may suffer. Besides, nobody keeps currency open, some amount of hedging is done and dollar denominated expenditure are also there," Kejriwal Research and Investment Services (KRIS) Director Arun Kejriwal said. The investors having put money in overseas securities like international mutual funds could also reap the benefits as as foreign currencies have fluctuated for the better.
"Stock market going up and down is a different situation, but purely looking through a currency perspective. if one has invested in rupee and is reaping the returns in dollars, he is a clear-cut beneficiary," Ashika Stock Brokers Research Head Paras Bothra said. For those individuals who work in India but get paid in the foreign currencies like dollar could also be rejoicing. Commenting on this, Basudev Mukherjee, Managing Director, Indian Staffing Federation, said: "As with any other item that is denominated in foreign currency, dollar denominated salaries are bound by market fluctuations. In the short term, the employees are set to gain from this situation."