BHUBANESWAR: The rupee, which has been falling steadily against the dollar, is striving to find its true value as it crash-dived to its lowest closing at 68.95 on July 5. The worst performing currency this year weakened over eight per cent against the US dollar since January this year. During the same period, it plunged 9.7 per cent against the Yen, 4.5 per cent the Euro and 5.2 per cent against the British pound. However, after two-straight weeks of downtrend, the rupee recovered by a marginal 34 paisa for the week ended July 14.
According to bankers, the 69 mark remains a crucial level for the domestic currency. Concerns over lack of foreign investment inflows and worsening of domestic macroeconomic variables such as the current account deficit due to higher crude prices are likely to keep the rupee under pressure and push it down to the level of 70-mark this week.
But there’s a part of your long-term investments which may be affected by a sharp decline in rupee. Many of us have financial goals to build a corpus to fund our overseas travel or send their kids to foreign varsities. However, the corpus is built in domestic currency. Now, with the recent rupee depreciation, it is difficult to determine what the corpus size will be when it’s time to withdraw the money from the corpus to fund the desired goals.
Now, how do we handle this uncertainty? Experts say that with the worst of the depreciation behind us, the good news is that you can deal with it by adding a portion of assets in portfolios that either brings dollar income from rupee investment or a hedge against currency risk.
Here’re some ways to benefit from the Rupee’s fall
● Add Pharma and IT stocks: Tweak your portfolio to add stocks in the sectors that might gain from the depreciation. These include export-oriented sectors such as information technology and pharmaceutical that earns big revenue in dollars.
Every dollar earned through exports means more rupee added to the bottom line. However, it is advised to have an advisor who is thorough with his analysis to choose them based on the company’s performance, profitability ratios in tandem with industry trends.
● Add international mutual funds: To cope with the long-term depreciation of the rupee, you can choose to invest in international mutual funds. Besides diversification, they will help with goals such as foreign education or travelling overseas.
This is because if the rupee falls against the dollar, the fund’s net asset value will increase and the investment will be worth more in rupees. While experts say it’s a good way to hedge against currencies, factors such as tax implications should be carefully considered and investors should stay invested for the long term.
● Invest in Dollar-denominated bonds: Investing in dollar-denominated bonds of Indian firms is one way chosen by NRIs and local HNIs to hedge against falling rupee. The companies should have stellar business results, market leadership, foreign currency revenue stream and high credit rating.
In most cases, the performance of the asset class is the primary factor while the effect on returns on account of currency movement is secondary. It’s more of a combination of variables that are required to be analysed and it’s unlikely to be a linear correlation with fund returns.