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Rupee at fresh “All-Time Low” : FPI outflows, costlier oil take toll; know who stand to gain

New Delhi: Continuing its falling streak, the rupee on Thursday declined 38 paise to its all-time low of 77.63 against the US dollar during the trade, due to persistent foreign fund outflows, surging crude oil prices and general dollar strength. In the previous session, the rupee had settled at 77.25 against the US currency. However, even though the rupee is weakening, experts say there are equity investors who stand to gain from the fall.

At the interbank foreign exchange, the Indian rupee opened sharply lower at 77.52 against the American currency, then lost further ground to touch an all-time low of 77.63, which is 38 paise lower as compared with its previous close.

Anindya Banerjee, vice-president (currency derivatives and interest rate derivatives) of Kotak Securities, said that the rupee touched a fresh all-time low of 77.63 against the dollar, after higher-than-expected inflation print in the US pushed the US Dollar Index to a fresh 20-year high.

Headline US consumer prices rose 8.3 per cent for the 12 months to April, higher than market forecasts for 8.1 per cent. Last week, the US Federal Reserve increased its benchmark lending rate by 50 basis points, the sharpest increase in over two decades.

“Weakness in equities was an add-on force for the US dollar. We suspect that the RBI may have sold the dollars to stem the decline in the Indian rupee. The overall view is of a range between 77.20 and 78.20 on spot,” Banerjee added.

The dollar index, which measures the American currency’s strength against a basket of six currencies, currently stands 0.19 per cent higher at 104.04. In the equities market, the BSE benchmark Sensex on Thursday was trading a significant 1,072.99 points, or 1.98 per cent, down at 53,015.40 during the day, while the NSE Nifty was down 339.30 points, or 2.1 per cent, to trade at 15,827.80.

The Brent crude remains above the USD 100 mark at 104.85 per barrel. On Wednesday, the crude oil prices rose about 5 per cent due to supply concerns on the back of the European Union’s proposal to ban energy imports from Russia.

Foreign institutional investors on Wednesday remained net sellers in the capital market as they offloaded shares worth Rs 3,609.35 crore, according to data from stock exchanges.

Mehta Equities Vice-President (Commodities) Rahul Kalantri said, “The dollar-rupee exchange rate hit the all-time low amid persistent foreign fund outflows, surging crude oil prices, and general dollar strength. The dollar index has been fluctuating around 103 in the last few days, a 20-year high hit as investors continued to bet on further US Federal Reserve monetary tightening to bring decades-high inflation under control.”

He added that oil prices impact India’s current account deficit and trade balance significantly as India imports more than 80 per cent of its oil needs.

V K Vijayakumar, chief investment strategist at Geojit Financial Services, has said the rupee depreciation is good for export sectors, particularly IT (information technology) companies. Pharmaceutical exporters, speciality chemicals and textiles will also gain.

So, export-oriented sector stocks such as IT, pharmaceuticals, specialty chemicals and textiles can be better bets during the rupee fall; while sectors such as fast-moving consumer goods (FMCG), metal and banking, among others, are at the receiving end.

For Indian investors buying shares abroad, Vested Finance co-founder and CEO Viram Shah said investments in the Indian stock market are in rupees but when someone invests overseas (in the US stock markets), it is in dollars. “You first convert your money into the dollar to invest in the US stock markets and then back to the rupee when you redeem it.”

He added that when the rupee depreciates against the dollar, it effectively means an additional return on your US investments. “With the rupee hitting a record low against the US dollar, Indian investors in US markers will stand to benefit. So far in the current calendar year, the rupee has depreciated by almost 4 per cent against the dollar.”

Shah said the rupee has depreciated by about 50 per cent as compared to the US dollar in the past 10 years. “So, 10 years ago, if you had invested Rs 5,000 in Nifty 500 (Indian stock market), your investment would have grown to approximately Rs 15,000 in 2022. But, if you had invested the same USD 100 in the S&P 500 (US stock market), your investment would have grown to approximately USD 320 in 2022. That is nearly Rs 24,000.”