3 days ago
Rupee Nears 97 per Dollar, Creating Winners and Risks
The Indian rupee has weakened against the US dollar and fallen below 97 rupees per dollar.
A stronger US dollar, high US borrowing costs and expensive oil have weighed on it.
Investors selling Indian shares have added to the pressure.
A weaker rupee can make imported goods, including oil, cost more for India.
That can add to inflation and make business costs higher.
But some companies earn money in dollars or other foreign currencies.
When they exchange that money, they may receive more rupees than before.
Exporters in technology, medicine, textiles, metals and some auto parts could benefit, especially if their costs do not rise too much.
The rupee fell below ₹97 per US dollar amid a stronger dollar, high US Treasury yields and Brent crude above $100 a barrel.
Foreign institutional investor outflows from Indian equities have added pressure on the currency and broader markets.
Analysts warn that rupee weakness raises import costs, including for crude oil, and can increase inflation and pressure corporate margins.
Export-oriented IT and pharmaceutical companies may gain when foreign-currency revenues convert into more rupees.
Textile exporters, globally traded metal producers and selected auto-component and engineering exporters may also benefit, depending on their import costs.
- Who
- Indian rupee, Indian companies and equity investors; analysts Sugandha Sachdeva and Seema Srivastava commented.
- What
- The rupee fell below ₹97 per US dollar, raising import-cost concerns while potentially benefiting some exporters.
- Where
- India and foreign markets where Indian exporters earn revenue.
- When
- At the time reported; no specific date is provided.
- Why
- A stronger US dollar, elevated US Treasury yields, Brent crude above $100 a barrel and foreign investor outflows are weighing on the rupee.
Economic and import-cost risks
Potential gains for exporters
Impact of rupee depreciation
Economic and import-cost risks
A weaker rupee raises the landed cost of imports, can increase imported inflation and may pressure corporate margins and the current account.
Potential gains for exporters
Companies earning substantial revenue in foreign currencies while paying much of their operating costs in rupees may see higher rupee realizations and improved margins.
Export-company benefits
Economic and import-cost risks
The benefit can be limited if imported raw materials or components become more expensive, particularly if those costs rise disproportionately.
Potential gains for exporters
IT, pharmaceutical, textile, metal and mining, and selected auto-component and engineering exporters may gain from higher rupee value of foreign earnings and improved export competitiveness.
Key facts
- Rupee level
- Below ₹97 per US dollar
- Oil price cited
- Brent crude remained above $100 a barrel
- Pressure factors
- Stronger US Dollar Index, elevated US Treasury yields and foreign institutional investor outflows
- Potentially advantaged sectors
- Information technology, pharmaceuticals, textiles, metals and mining, and selected auto components and engineering exporters
- Main economic risk
- More expensive imports may contribute to imported inflation, pressure company margins and weigh on the current account
- Condition for exporter gains
- Benefits are greater when foreign-currency revenues rise in rupee terms and imported input costs do not rise disproportionately
Quotes
Sugandha Sachdeva
Founder of SS WealthStreet
“Rupee depreciation raises the landed cost of imports, increases the risk of imported inflation and can put additional pressure on corporate margins as well as the current account. In that sense, higher crude oil prices and a weaker rupee can reinforce each other and create an adverse feedback loop for the economy,”
livemint.com
“As the rupee slides, every incremental currency unit gained upon converting foreign billings directly expands their operating margins, bolstering profitability even when volume growth remains steady.”
livemint.com
Sources
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