MUMBAI: The Indian Rupee continued its fall on Thursday, even touching an all-time low of 68.86 against the U.S. Dollar in intra-day trade, before closing the day at a 39 month low of 68.73. The fall is being pegged on the continuing outflow of funds from foreign portfolio investors, exacerbated by expectations of a U.S. Fed rate hike come December. Demonetisation is also playing a part in the fall, said sources.
The plunge is suspected to have been arrested only by an RBI intervention and analysts fear that a Fed rate hike in December might see the Rupee touch 70 per U.S. dollar. The Finance Ministry also stated on Thursday that it was closely monitoring the situation. According to experts, three factors are contributing to the rupees extended fall this month (it has dropped 3 per cent) — continued foreign outflows inflicting a double whammy of reducing rupee value and strengthening the dollar, rising U.S. bond yields and some peripheral impact from the demonetisation exercise.
“FPIs’ action is based on Donald Trump’s victory as the US President and in anticipation of a hike by the Federal Reserve,” Lakshmi Vilas Bank ED N S Venkatesh, while Federal Bank ED and CFO Ashutosh Khajaria said, “It is not the weakness of the rupee, but the strength of the greenback.”
A falling rupee is not necessarily bad for the economy since export oriented sectors are set to benefit like the troubled IT sector, Pharma, Textiles and Gems and Jewellery.
Auto costs to rise?
A falling rupee might be good for most export sectors, but the automobile sector is only set to see costs rise since a large percentage of raw and processed materials that are imported are set to become costlier. High-quality steel and certain electronic components are some of the sector’s largest imports
Sweetener for IT sector
The troubled IT sector is set to see some relief translate into balance sheets and profit margins as the rupee continues to fall and the dollar strengthens. However, one of the reasons for the rupee’s fall is Donald Trump’s expected policies and these may affect IT business prospects in the U.S. — one of its largest markets
Textiles and Pharma
Both the textiles and pharma sectors have huge export exposures and a falling rupee is usually a bonanza for the two, as with Handicrafts. However, while Pharma will see tangible benefits, sources say demonetisation and the unorganised nature of textiles and handicrafts might drag back any benefits that might arise
Oil costs to keep rising
The resumed upswing in the prices of oil globally has already started affecting costs at petroleum companies, logistics firms and others dependent on oil. A weak rupee is only set to exacerbate matters further. Oil Marketing Companies will also take a hit if the rupee continues on the downward track.