Hi, my fellow citizens! Before you ask me to clarify the topic, I would like to ask you all a single question. What is the Dollar versus Rupee rate now? You may be thinking that it must be near to 70 rupees/dollar. Well, no! It has dropped to 64.12 rupees/dollar. This is the rate I got while writing this post. Subject to manipulations! I can’t help it.
Effect of Rupee appreciation
Now you must be wondering why did the value of the dollar, one of the strongest currencies fall? The Rupee was expected to fall to RS 70/$. The reverse happened. Is this good news? No. We needn’t take pride in it. This will adversely affect corporate earnings, Sensex and Nifty. Don’t forget to look at it’s pros. Crude oil prices will be a lot cheaper keeping inflation under control.
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The export oriented businesses will definitely suffer a blow. The Indian rupee has appreciated 5.3% on a year-to-date basis. The Earnings per Share(EPS) of Nifty companies with links to the global economy will fall to 4% if the Rupee falls to Rs 62/$ (Source: livemint.com). As shown above, metals and mining, export automobiles, pharmacy companies are going to suffer a lot.
Not only large companies, small and medium-scaled companies also are affected. Now, you must have already deduced that Rupee appreciation is affecting both import and export oriented companies in positive and negative ways respectively. Also, the equity market is benefited.
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Reasons for Fall of Dollar
- US economics and politics led to this Great Fall. Being the world’s largest economy, Dollar gained some momentum to some extent, but the labor costs grew as well. This shows low inflation. Hope that Trump comes up with tax reforms and successfully escapes the yoke of politics.
- Foreign inflows into the Indian market led to its fall. No doubt equity markets will benefit. But we can expect that Dollar trend and inflows will determine Rupee appreciation from now on.
- The International Monetary Fund(IMF) has said Indian economy is going to grow owing to new tax reforms, including GST.
- Moreover, it seems that RBI is at home with a stronger rupee and has therefore, stopped gather gains in the domestic currency.
- According to NDTV, Indian markets have garnered a total of $30 billion this year.(Wow!) Is this the result of numerous visits of our Prime Minister?
Domestic economical growth of India, low inflation and record foreign-exchange are other factors that contributed to a stronger Rupee. Well, let’s see what the future has in store. A stronger Rupee or vice- versa? What do you think…Which one will benefit us more? The former or the latter. Do let us know.