ProfitNama

ProfitNama

Rupee at New Lows Ahead of Fed – Implications Explained

Introduction

The article discusses the Indian Rupee weakening further to fresh record lows against the US Dollar as markets await the latest Federal Reserve interest rate decision.

Analysis for a Layman

Investors globally are waiting nervously for the US central bank Fed’s next steps on interest rates given worries about a US recession. When investors become risk-averse, they tend to sell risky assets like Indian stocks and buy the safe US Dollar instead. This pushes the Indian Rupee value down compared to the dollar, as happened today also ahead of an important Fed update tonight. Though RBI tried intervening to support Rupee, it still hit a new lifetime low against the Dollar. This drop signals investor nervousness on what Fed might do next with US rates and its impact.

Rupee at New Lows Ahead of Fed

Original Analysis

The risk-off rupee slide underscores the vulnerability of EME currencies against recurrent Fed policy uncertainty despite India’s relative fundamental edge currently through growth, inflation divergences. However, with the terminal Fed rate still elusive to gauge, intermittent bouts of Dollar buying frenzy persist, limiting RBI’s smoothing abilities. Though temporary overshoots get eventually corrected as India’s balance of payments stays secured by capital flows and reserves buffer, timing the cycle turns remain challenging. For now, the RBI aims to prevent runaway overshooting rather than strong-arming appreciation. Letting markets define equilibrium levels while limiting volatility appears the prudent approach.

Impact on Industries:

Import-intensive sectors like oil marketing, tire manufacturers feel margin pressures rise as the rupee weakens, forcing them to cushion currency impacts through calibrated price hikes or operating leverage adjustments. However, broader demand outlook uncertainties for key finished goods like automobiles also compel caution on outright pass-through abilities. Sectors like IT services, pharma gain on exporter advantage from depreciation boosting rupee earnings potential. Still, near-term revenue trends defined more by client geography budgets beyond currency upsides. Cognizance required on second-order effects like fanning imported input cost inflation if currency over-weakens substantially.

Companies That May Gain:

  • Infosys
  • HCL Technologies
  • Sun Pharma

Companies That May Lose:

  • Maruti Suzuki
  • Bajaj Auto
  • Hindustan Unilever

Conclusion:

Despite India’s economic strengths, FPI-driven equity and currency markets may witness bouts of volatility around major global macro events like Fed actions. Rupee overshooting limited by RBI policies broadly.

Citation:

Dutta, Bhaskar. “Re Closes at Fresh Low Ahead of US Fed Policy.” The Economic Times, 14 Dec.

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here