Even as the Indian rupee plunged to its all-time low of 77.52 against the US dollar during early trading on Monday, equity investors can weather the heat in their portfolios and the price of gold could jump. Analysts said the rupee’s depreciation could convince FPIs to keep selling shares here, while gold prices in India could rise.
The Indian rupee fell to a record low of 77.52 against the US dollar during trading on Monday. Strong US job data and prospects of aggressive rate hikes by the US Fed boosted the dollar. “The rupee has fallen as a result of continued outflows from foreign funds, rising crude oil prices and the general strength of the dollar,” Rahul Kalantri, vice chairman (Commodities) of Mehta Equities.
BSE benchmark Sensex was trading 367.39 points lower at 54,468.19 points Monday, while the NSE Nifty fell 110.1 points to trade at 16,301.15 points.
Investors have already witnessed a decline in their equity portfolios due to outflows from foreign funds and mixed corporate earnings. The surprise rate hike by the Reserve Bank of India (RBI) also dragged the market down on Friday.
Kalantri said: “Stock markets do not like rising USD INR and always go in the opposite direction of USD INR. Meanwhile, the weakness of the rupee gives strength to domestic gold and silver, but the rising dollar is also unfavorable for international gold.”
Kalantri added that the dollar index has hovered around 103 in recent days, reaching a 20-year high as investors continue to bet on further monetary tightening by the US Federal Reserve to contain 40-year high inflation.
The US Federal Reserve raised its benchmark lending rate by 50 basis points last week, the strongest increase in more than two decades. The Fed’s hike in key rates pushed it to a range of 0.75 percent to 1 percent, the highest point since the pandemic struck two years ago. The half-point rise, the most aggressive since 2000, suggested major rate hikes are likely to come.
On some sectors that could benefit from the rupee’s decline, VK Vijayakumar, chief investment strategist at Geojit Financial Services, said: “The rupee’s depreciation is good for export sectors, especially IT (Information Technology) companies. Pharmaceutical exporters, specialty chemicals and textiles. will also benefit.”
Thus, export-oriented sector stocks such as IT, pharmaceuticals, specialty chemicals and textiles may be better bets during the rupee’s decline; while sectors like fast-moving consumer goods (FMCG), metals and banking, among others, are on the receiving end.
Vijayakumar added that buying the US dollar as a safe haven pushed the dollar index to 104, impacting other currencies, especially emerging market currencies with high current account deficits.
“Since gold is valued in dollars, the appreciation of the dollar depresses the price of gold. But the Indian gold price will rise due to more expensive imports due to the depreciation of the rupee,” he said.
Foreign portfolio investors (FPIs) took Rs 6,400 crore off the Indian stock market in the first four trading sessions of the current month, as the Reserve Bank of India (RBI) and the US Federal Reserve raised interest rates.
Kotak Securities Head (Equity Research-Retail) Shrikant Chouhan said that given headwinds in terms of high crude prices, inflation and tight monetary policy, among other things, flows of FPIs in India are expected to remain volatile in the near term.
Read all the latest news, breaking news and IPL 2022 Live Updates here.