The unabating fall of the Indian rupee has spooked many Indians. On Thursday, the domestic currency breached the 72 mark against the US dollar for the first time ever. While the sharp decline in rupee's value has unnerved importers, it has also brought cheer to many Indians who stand to gain from its slide.
The INR which was around Rs 63.38 on January 1, 2018 against the USD has depreciated to nearly 72, recording a 13.6 per cent slump since the beginning of this year. The plunge in rupee indicates that foreign investors are losing faith in India and exiting their investments in the belief that their money can earn better returns elsewhere. Foreign investors and funds have pulled out $280 million from the Indian equity markets so far this year.
It's not just FIIs who are skittish about the falling rupee. Among those affected by drop in rupee's value include importers, students studying overseas, people going abroad for vacation or other purposes. The relentless depreciation of rupee will hit domestic consumers too.
Carmakers, dependent on imports of parts, are likely to pass on the costs to car buyers. Electric appliances like laptops, TVs, etc. are also likely to turn dearer in the coming days. Mobile phones, for which components come from outside India, may see a price hike ahead of the festive season. Some consumer durable companies like LG, Haier, and Godrej Appliances have already hiked prices by 3-5 per cent this month. Executives at Chinese smartphone major Xiaomi have already hinted at a price hike if rupee continues its losing streak against the greenback.
Airlines, which are already facing headwinds due to higher oil prices, are also likely to face the brunt of falling rupee. Unlike state-run oil marketing companies, their ability to pass on higher costs to consumers is limited due to stiff competition.
A weak rupee will eat into the bottom line of companies which have taken foreign currency loans in the form of external commercial borrowings and FCCBs.
While there is a direct impact on imported goods, some companies will be indirectly hit by the rupee fall. To start with, the fall will slow economic growth as foreign funds lose confidence in India and take their capital elsewhere. This will compress margins and make it difficult for companies to pay off debts, in turn putting pressure on banks as well.
However, it's not all gloom and doom for India Inc. Indian IT and pharmaceutical companies which earn a huge portion of their revenues in dollars are likely to make a windfall. Every dollar earned through exports means more rupees added to the bottom line. IT companies are likely to post higher revenue growth for this quarter. An industry thumb rule says that every 100 basis points, or bps, rupee movement impacts operating margins of IT companies by 30-50 bps.
India, also the world's highest receiver of remittances, is likely to get more money from NRIs and overseas workers who earn in dollars. People dependent on overseas remittances are likely to have more money at their disposal.
Amid the downside, there is a silver lining too. Domestic tourism may get a boost as travellers may prefer holidaying in India rather than going abroad. Foreigners too, will find it cheaper to visit India.