New Delhi. The decline in the Indian currency has been going on for a long time, but on Friday it surprised even more. The rupee plunged to the level of 89.49 against the dollar, which is the lowest level till date. The effect of rupee rising to this level can be seen on all sectors in the country. After increasing domestic demand for dollars, pressure on the local currency increased and the rupee fell below 89. This has not only created the danger of rising inflation, it is also creating the risk of increasing input costs and increasing import duties. Experts say that due to the fall of rupee against the dollar, there is a risk of sentiment in the equity market becoming negative.
This decline in the rupee against the dollar was seen at a time when the atmosphere at the global level was almost calm. This is the reason why traders were even more surprised and everyone’s attention towards the currency market increased even more. Forex advisors also say that the fall in rupee is special because the global market was almost stable. There was no significant fluctuation in the dollar index and crude oil prices were also stable. Not only this, there was not much pressure on the currencies in the emerging markets, despite this, the sudden decline in the Indian currency against the dollar is a matter of concern.
Why was there such a big decline?
According to experts, the supply of dollars was less and due to aggressive buying a liquidity gap was created in the market. Apart from this, the Reserve Bank, which till now was continuously preventing the dollar from going below 88.80, also retreated a little. This is the reason why stop loss orders were suddenly triggered in the market and due to the sharp fall, the rupee went above 89 for the first time. It is a different matter that there has been some improvement in it on Monday.
What will be the impact on the equity market?
Rahul Kalantari of Mehta Equities says that the fall in oil price of rupee usually affects the sentiment of equity also. The fall in the rupee against the dollar creates a risk of sentiment in the stock market as investors are worried about rising import bills, rising costs for companies and pressure from shrinking margins in import-dependent sectors. This pressure is felt more on the shares of midcap and smallcap sector, where investors place the most bets these days. Apart from this, due to the sharp fall in the rupee, foreign investors also generally become defensive and volatility also increases due to the decline in their returns in dollar terms.
What advice for investors
Market experts say that small and weak investors should maintain distance from the market or invest very carefully. The market may become volatile in the short term, which may lead to outflow of foreign investors in rate sensitive and high valuation sectors. However, he also said that the fundamentals of the Indian stock market are very strong and any correction here can happen only in the short term or for a very short period.
Expecting a boom soon
VK Vijayakumar of Geojit Investments says that the fall of rupee will not have much impact on the market at present. However, on Monday also the stock market closed in decline for the second consecutive session. Despite this, Vijaykumar is hopeful that with the weakening of AI trade in the global market, foreign investors can soon become buyers in the Indian market. If this happens, the Indian currency may also get stability soon.
Which sector will benefit and where will it suffer loss?
Due to the fall in the Indian currency against the dollar, some sectors will be profitable, but some sectors may have to suffer losses. Export-oriented industries will benefit from the weakening of the rupee, as Indian exporters will be paid in dollars, which is currently very strong against the rupee. Such sectors include textiles, pharma, gems and jewelers and IT sectors. Apart from this, chemical and auto sectors are also expected to benefit. On the contrary, the import based sector may have to suffer losses due to margin pressure. In this, some parts of aviation, oil, fuel, electronics, consumer durable and auto sectors will suffer loss.
This decline is temporary
Most experts believe that foreign investors are currently showing more concern about valuations and not on the rupee. The attitude of foreign investors towards India will remain positive in the coming 3 to 12 months. Therefore, this problem is temporary and if there is an agreement between India and America, then the trade deficit will reduce and the currency will get stability. Softening of crude oil prices, cooling of dollar and continuous intervention of RBI can bring the rupee back into range.
