How Will the Weakening Rupee Affect Your Stock Market Investments?

As the Indian rupee hit its new all-time low of 70.50 against the dollar today, experts say its losses could extend further mainly due to the widening basic balance deficit of the country, foreign currency outflows from and pre-election uncertainty.

You may have observed that in recent times, the fall of the currency has pushed the stock markets gains higher in India, and this is because the major contributors to the two Indian indices like Reliance Industries Limited and Infosys have dollar driven revenues. On the other hand, revenue of companies that are import driven is going to hurt.

Here are a few predictions on how the stocks of certain companies could act. Please note that the loss or gain of a company is specific to the business of the individual company and their customer base and not the sector as a whole.

The main beneficiary of the rupee's fall due to the strengthening of the dollar is the information technology (IT) sector. These companies draw a large share of their income from software services export which give them dollar revenues. The companies that will benefit, however, are the ones with unhedged overseas sales income.

Pharmaceutical companies like Divi's Lab Ltd with US exports as a substantial part of their sales will benefit. The drugmakers that have a multinational business and also have a higher percentage of domestic sales will be hurt from inputs (raw material) that are imported in dollar terms.

The aviation companies will face the burn from the depreciating rupee as over 65 percent of revenues are dollar-denominated. In its recent first quarterly report for 2018-19, Jet Airways blamed the depreciating rupee and high fuel prices for the high losses reported.

Similarly, oil marketers will be hurt as they purchase their main material-crude oil in dollar terms. These companies usually, however, pass a large extent of the burden to the final consumers. On the other hand, oil explorers will gain from the dollar-denominated sales.
Cement makers that are dependent on imported coke and diesel will also be hurt.

The reactions in certain sectors like automobile and metal will be mixed. While companies that depend heavily on imports like Maruti Suzuki and Asian Paints could hurt, TVS Motors (with increased export sales in the last reported quarter) will gain from a stronger dollar.

Finally, while the depreciating rupee will benefit certain stocks, it will hurt India's macroeconomic stability, if unless exports rise significantly. The Indian currency's steep fall has balanced any gains that the foreign investors would have made from their investments in the country's stock markets. Their reduced interest has caused a withdrawal of nearly Rs 39,000 crore this year (up till now) by them, mostly from debt. The withdrawal puts further pressure on the rupee.