The Indian rupee on Tuesday hit a fresh record low of 72.97 against the USD on the back of higher crude prices and higher US yields. Most analysts fear that the currency is unlikely to recover anytime soon and might depreciate further towards Rs 73-74/USD in the near term.
US 10-year yields have broken the 3 percent mark and seem to be headed northward. Lingering concerns of a rise in current account deficit (CAD) due to rise in crude oil prices are also hurting the currency.
A more aggressive intervention by the central bank or a stronger set of measures by the government would be required to deter speculators. A rate hike by the Reserve Bank of India (RBI) could also be on the cards, suggest experts.
“Further rupee depreciation will call for concerns as thereafter RBI have to change stance and increase interest rates in forthcoming policy or maybe mid-way. Another thing to note is that historically RBI has maintained the gap between the US and domestic interest rate,” he said.
A depreciating rupee could result in upward pressure on inflation and may result in an increase in policy rates. A rise in interest rates will impact the profitability of companies and especially the ones in the power, infrastructure and capital goods segment could be impacted.
The “INR depreciation losers” category includes Goldman Sachs (GS) covered stocks with high USD debts or a high USD cost base. The relative performance of winners vs. losers has moved closely with the INR move (vs. USD) over the past 12 months, Goldman Sachs said in a note.
The global investment bank lists out 11 stocks which are likely to get impacted the most from depreciation in the rupee. The list includes IOC, BPCL, Hero MotoCorp, Shree Cements, Ambuja Cements, Havells India, HPCL, ACC, Exide Industries, IGL and Amara Raja Batteries.
While rupee depreciation will benefit a lot of net export-dependent sectors, investors should also consider the impact on consumption due to higher inflation (rise in crude oil prices, higher fiscal pressure and consequent borrowings resulting in higher interest rates) and the impact on external borrowings by the companies which will need to be restated.
“India’s short-term debt obligations as on Dec 2017 were to the tune of $217.6 billion. Let’s assume half of this due for repayment over the next 1-2 quarters, and extra outflow of Rs.65,000 cr will be required considering an average 9.5% depreciation in the value of the rupee,” Deepak Jasani, Head – Retail Research at HDFC Securities told Moneycontrol.
“As far as the effect of falling rupee on govt finances is concerned, the depreciation in the value of rupee will create pressure on oil import bill and in turn on fuel prices. It will lead to higher borrowings by the govt, increase inflation (due to higher fuel costs, higher landed cost of imports and higher interest costs in the system), and will impact consumption growth thereby impacting rate of economic growth,” he said.
Goldman Sachs has also highlighted 14 companies which are likely to benefit from rupee depreciation, including names from export-oriented sectors such as IT, pharma as well as select auto names.
Stocks which are likely to benefit include names like Infosys, HCL Technologies, Tech Mahindra, Lupin, Sun Pharma, Bajaj Auto, Dr Reddy’s Laboratories, Motherson Sumi and Mphasis, etc. among others.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. The above report is for information only and not buy or sell recommendations.