The appreciating Rupee - Reasons & Impacts
The Indian rupee has appreciated by nearly 10 % from its level in 2006
What does it mean is for each dollar we will have to shell less of rupee or in other words rupee has appreciated. Say for example if we are an exporter selling goods worth $ 1 to overseas customer we will get Rs 40 now than 48 earlier so it’s a concern for them as they will loose in the exchange rate. To be profitable exporters will have to increase the price of goods, which will make their products more expensive in abroad markets and they might loose their competitiveness.
But what is actually fuelling this rupee rally. I think we should attribute it to the demand and supply game in the currency markets. The main reason for this appreciation can be attributed to the inflow of $ into India. There are lot of reasons for this inflow, companies borrowing via ECB route from international market which land up or the FIIs and FDIs coming into India looking at the growth in our economy or the ADRs/GDRs issued by companies for their expansion which lands up here to the Bharatiya NRI population who send money home all become an inflow which disturbs the demand supply equilibrium and hence the appreciation.
All economies when they are in the growth phase experience local currency appreciation. It is expected that by 2008 Jan the rupee would have appreciated to around Rs 39/dollar and is expected to appreciate further as our economy progresses. There are chances that the world markets might be in trouble by 2008 as I said above due to their bad credits and wrong mortgage products. If its so Indian markets will too become jittery and volatile and there might happen that lot of money might move out of our economy due to short sell and Indian curency will depreciate (will move from around Rs 39 to Rs 40 per $ appx ). Though the impact will not be substantial its advisable that clients move the money to India at the earliest.
I had been advising all my clients, since Jan 2007, who have ESOPS abroad to sell and transfer the money to India as fast as possible. There are two reasons to it. First being the Indian currency appreciation which will eat away the gains of the ESOP and second being the US economy itself as it might be heading for a trouble in their local credit market which might further deteriorate the returns in their stock markets. Instead I advise to bring the whole amount of ESOP to India and invest in diversified equity funds or scrips to make an average return of 18% YOY.
In this scenario I would also suggest that we keep our eye open and find out those companies, which get the benefit of the currency appreciation and lets invest in them. Ideally the main advantage of this will be for the importers and foreign investors investing via FDI or as FII who will reap the benefit of this appreciation. No wonder our stock markets are breaking all records now though caution remains.
Keep Reading and Lets Invest…
What does it mean is for each dollar we will have to shell less of rupee or in other words rupee has appreciated. Say for example if we are an exporter selling goods worth $ 1 to overseas customer we will get Rs 40 now than 48 earlier so it’s a concern for them as they will loose in the exchange rate. To be profitable exporters will have to increase the price of goods, which will make their products more expensive in abroad markets and they might loose their competitiveness.
But what is actually fuelling this rupee rally. I think we should attribute it to the demand and supply game in the currency markets. The main reason for this appreciation can be attributed to the inflow of $ into India. There are lot of reasons for this inflow, companies borrowing via ECB route from international market which land up or the FIIs and FDIs coming into India looking at the growth in our economy or the ADRs/GDRs issued by companies for their expansion which lands up here to the Bharatiya NRI population who send money home all become an inflow which disturbs the demand supply equilibrium and hence the appreciation.
All economies when they are in the growth phase experience local currency appreciation. It is expected that by 2008 Jan the rupee would have appreciated to around Rs 39/dollar and is expected to appreciate further as our economy progresses. There are chances that the world markets might be in trouble by 2008 as I said above due to their bad credits and wrong mortgage products. If its so Indian markets will too become jittery and volatile and there might happen that lot of money might move out of our economy due to short sell and Indian curency will depreciate (will move from around Rs 39 to Rs 40 per $ appx ). Though the impact will not be substantial its advisable that clients move the money to India at the earliest.
I had been advising all my clients, since Jan 2007, who have ESOPS abroad to sell and transfer the money to India as fast as possible. There are two reasons to it. First being the Indian currency appreciation which will eat away the gains of the ESOP and second being the US economy itself as it might be heading for a trouble in their local credit market which might further deteriorate the returns in their stock markets. Instead I advise to bring the whole amount of ESOP to India and invest in diversified equity funds or scrips to make an average return of 18% YOY.
In this scenario I would also suggest that we keep our eye open and find out those companies, which get the benefit of the currency appreciation and lets invest in them. Ideally the main advantage of this will be for the importers and foreign investors investing via FDI or as FII who will reap the benefit of this appreciation. No wonder our stock markets are breaking all records now though caution remains.
Keep Reading and Lets Invest…
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