With high crude oil prices and weak macro-economic fundamentals, the Indian rupee collapsed to a lifetime low of 69.10 against the US dollar earlier on Thursday and finally closed at Rs 68.78, while the pound sterling finished higher at Rs 90.03.
With the drastic fall of rupee, sources said, a horde of sectors, including small, medium and large companies involved in importing raw materials or those with foreign borrowings or both, are set to see pressure in near future. “Goods and services exporters in major sectors such as IT, pharma, jwellery are likely to witness sentimental rub-off from rupee’s depreciation,” sources added.
The low currency witnessed both the key indices losing points. While BSE Sensex slumped 179.47 points to close at 35,037.64, broader NSE Nifty shed 82.30 points to 10,589.10 on Thursday.
With the depreciating trend of the Indian currency, experts expressed mixed response, saying that a weak currency and stubborn global oil prices not only pose inflationary risks to imports (net energy importers like India), but also discourage foreign institutional investors (FIIs) into the country and the export scenario as well. Besides, they also foresee that currency may be weakening closer towards the 70-mark in near future.
Prathamesh Mallya, chief analyst of Mumbai-based broking firm Angel Commodities Broking, said, “A major selloff in the domestic equity and debt markets has added downward pressure on the Indian currency. So far this year foreign investors have sold a combined value of $7 billion in equity and debt markets.”
As far as export scenario is concerned, Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said the development would not provide any additional support to exporters as currencies of other emerging economies, including China, are depreciating. “It will provide a level-playing field to our exporters. It will not provide a much needed support as India is not singled out,” Sahai added.
India’s exports grew 20.18 per cent to $28.86 billion in May — the highest in six months, even though the trade deficit widened to a four-month high of $14.62 billion.
If we compare the currency situation way back in 2013, when the rupee weakened past the Rs 68 against the dollar mark for the first time then, oil was near 110 per barrel, poising the oil as the villain though, the current account deficit (CAD) was seen testing 3.6 per cent during the period, putting pressure on the rupee. Besides rupee as a factor, the other pressure on CAD was through imports, which was largely due to gold, apart from oil.
FIIs have become more reluctant in Indian equities and debt lately.
“Signs of softer monetary policy have led to an outflow to the tune of around $3.5 billion from debt this year. The CAD is also projected to edge higher, while inflation at both consumer and wholesale level has reversed the declining trend. FIIs have also taken out around Rs 16,000 crore from Indian equities during the first quarter of this fiscal,” said an expert on condition of anonymity.