What has spooked investors is not just the fact that the rupee has depreciated to an all-time-low but the speed at which it has fallen. A weak currency generally reflects a weak economy, and from investors- perspective, opportunities decrease. Here are some strategies to deal with a depreciating rupee.
While the maximum impact is felt by exporters and importers, this is not the only factor affecting stock prices. It may not even be the primary one. For example, IT companies may find their shares buffeted by weak global demand even though the rupee movement is in their favour. Also, most IT companies hedge their foreign currency earnings and so may not gain much.
One straight way to deal with this is to stagger investments with the classic, time-tested systematic investment plan or SIP. So, whether the rupee trades at 52 to the dollar or 56, you make disciplined, fixed-value investments. Outsmarting the markets or reacting to every event is not necessary.
Another strategy is to follow foreign institutional investors, or FIIs, which will start buying when the rupee stabilises and will aid its upward trend. However this is, at best, a punt and not recommended for any except the most seasoned and involved short-term investors. Another approach is to stay focused on defensive sectors like FMCG and pharma.
This may not give you great returns but will keep your portfolio relatively stable in economically stressful times. On the other hand, it will pay to stay away from companies with significant FII holding because they may continue to sell if the rupee keeps depreciating.
There are opportunities beyond stock markets too. While select agri commodities which are exported - such as jeera and spices - will give good returns, other factors affecting prices like demand-supply should be kept in mind while taking investment decisions.
And then there is gold - probably the best deal for the last ten years on the trot and a favourite investment of rich individuals and retail investors alike across the world. In general, any dollar-denominated asset can give you good returns in today's times, but do factor in all the elements that influence its price.
President, Retail Distribution, Religare Broking