The rupee fluctuation impacts the earnings of companies. Not all companies are directly affected but export and import based companies can be affected by exchange rate fluctuations.
Rupee appreciation –
Appreciation in Rupee is not good for companies where major part of their income comes from export. Appreciation of rupee makes products more expensive for export. When the products become expensive, importing nations either reduce the import or look out for other nations that can produce the same product at cheaper prices. Hence, any appreciation in rupee is often accompanied with clamor by export companies to devalue the currency.
Rupee appreciation is good for companies that depend on import from other countries. For example, oil companies, Pharma, Engineering, and medical device companies will be fine with rupee appreciation. The machinery, oil, and engine used in such industries will be cheaper to buy. Investors can consider investing in such companies when rupees appreciate.
Rupee depreciation –
Rupee depreciation is when it loses value against dollar. In India where import is more than export, rupee depreciation makes things worse because imports get expensive. This increases the deficit. Rupee depreciation is not a good signal except for export driven companies.
For Indian economy, which depends on oil import, any fall in rupee will impact its oil bill. This will increased inflation because of increased oil bill. Increased inflation eats into the returns of investors. Moreover, a high inflation reduces the economic activity and consumption.
Software companies, textile companies, and many other export driven sectors such as tourism are the ones where investors can think of investing. Their export becomes cheaper and hence they can sell more to the overseas clients. These companies will do well. |
