How to save your portfolio against falling rupee?

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How to save your portfolio against the falling rupee?

The Indian rupee has depreciated nearly 4% this year. While the overall impact of a weaker rupee is negative on the equity market, some sectors stand to benefit from this fall 

The Reserve Bank of India’s rate hike in May, in order to be in line with the global market sentiment, has pushed the domestic currency to record low levels.

The rupee has skidded over 2 percent against the US dollar in May, seeing its worst monthly decline in 2022. In comparison, the S&P Sensex and Nifty 50 tanked over 3 percent each during the period.

Weak economic data, rising interest rates, soaring inflation, and the exit of foreign investors are some of the key triggers behind the rupee’s meltdown. 

That is because a depreciating rupee does not bode well for foreign investors as returns reduce from Indian investments, prompting their departure.

According to data provided by Jefferies, foreign portfolio investors have sucked nearly 5 billion dollars from Indian equities, so far in the month of May.

Moreover, a falling rupee expands the deficit math of an import-oriented economy like India. As the Indian economy is heavily dependent on crude oil imports, a weaker rupee, as well as higher crude oil prices, weighs on the current account deficit. It also presents the risk of imported inflation.

Remember, a heavier import bill along with a weaker rupee widened India’s deficit to 20.7 billion dollars in April from 18.5 billion dollars in March.

According to a report by S&P global market intelligence, India’s oil imports bill hit a record high in April as it surpassed 4.8 million barrels a day.

Against this backdrop, analysts believe that import-dependent companies will bear the brunt of a sliding rupee, especially when the input costs are on the rise.

falling rupee, rising input costs weighing on the economy. Inflation is rising due to a weaker rupee, he says adding that import-dependent companies will bear the brunt

According to research, the Indian rupee could trade in the range of 75 to 79 per US dollar in the first half of FY23.

A rise in the current account deficit, along with monetary policy tightening, dollar strength, and risk aversion towards emerging markets, is expected to impart a depreciating bias to the Indian rupee. However, large forex reserves, narrowing inflation differentials, and the likely stemming of FII debt outflows would prevent a further depreciation,

A weaker rupee offers a silver lining for the export-oriented sectors.

Analysts believe that IT, pharma, textile, and specialty chemicals could gain a competitive edge amid the sharp decline in the rupee.

The weak rupee will benefit IT, pharma, textile, and specialty chemicals. Rising input costs can neutralize gains across export-oriented sectors, but the falling rupee will not bode well for auto, capital goods, power, and telecom sectors.

Overall, with rising interest rates and weak global macros, there’s little room for optimism for the domestic currency.

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