Skip to main content

Rupee depreciation and its effects

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Buy Gold Mutual Funds

While a certain section of population will gain from the rupee slide, others may be hit badly. Either way, stay cautious it may continue in the short term



The Indian rupee seems to be fighting a prolonged battle. Given the high trade deficit, drying up of capital flow, and fears over the stability of Eurozone, the rupee is getting weaker by the day. On 24 May, it hit an all-time low of 56.38 before recovering to close the day at 55.65. The situation is unlikely to change for a while. Nitin Rakesh, CEO, Motilal Oswal AMC, suggests that Indians should get used to this 'new normal' for the rupee. "The rupee is likely to continue to remain in the mid-50s, and become the new normal for some time to come," he says. This sharp decline of the rupee from 44/$ to 55.50/$ spells trouble for you for a variety of reasons, and may even require you to revisit your budget plans for the year. Everything, from your investments to spending and savings, will have to be reviewed to prevent your finances from falling into a disarray. We list out the areas in which you are likely to feel the pinch and those from which you could benefit.

Where You Loose
Investments
(importers, foreign
currency borrowers)
For stock market investors, the weakening rupee hurts on several fronts. The companies with significant foreign currency borrowings, or those which import raw material from abroad, have already taken a hit. India Inc's profitability has been significantly affected due to the mark to-market hit taken on foreign currency exposure. The weakness in the rupee may further dampen the FII sentiment, which has already been impacted due to policy inaction and macro troubles. This is because the value of their investments is eroding, which may prompt them to pull out more money from the markets.


Foreign travel
With every fall in the rupee, travelling abroad becomes more expensive as one has to fork out more in rupee terms for every dollar spent. Already, foreign tour operators have jacked up the prices for their tour packages and may revise them further. Even if you have booked the foreign tour package in advance, you may need to furnish the differential amount to the extent of the rupee slide.

Imported goods and fuel
Your desire to own the latest electronic gadget may cost you more than you budgeted for. Since most imported goods are billed in dollars, Indian consumers are likely to see the prices inch up further. Also, the companies that import raw material in large quantities will be forced to hike prices for the end consumer. This means that cars and two-wheeler manufacturers could realign their prices. The area where consumers are likely to be hit worst is the spike in fuel prices. With the declining rupee, the crude oil import bill for the government has also gone up, forcing it to jack up petrol prices. A further fall in the rupee may lead to more hikes.

Foreign education
The pain for parents of Indian students studying for their foreign degrees will not go away. Given the sharp decline in the rupee, they will have to incur a higher expenditure in rupee terms to cover their tuition fees, food, stay and other living expenses. SP Dhanapal, Sudha NRI Consultants, says, "The students going abroad for education will have to factor in a 10-15% rise in cost." Those taking an education loan to pay for the foreign education will have to bear a higher burden as the loan requirement will shoot up to that extent. Some may be forced to take a top-up on existing loans, which means that they will have to pay back that much more. Some parents may even have to dip into their personal savings to fund the shortfall.

Where You Benefit
Families of NRIs, exporters, investors in gold
and international funds stand to benefit from the massive slide in the rupee.

Foreign currency remittances
The non-resident Indians who are remitting money back home are effectively putting more money into their wallets as they will get more rupees for every dollar. Dhanapal says the rupee slide will bring cheer to nearly 2 crore NRI families. "Bulk remittances will witness a rise as NRIs take advantage of the rupee-dollar movement," he adds.

Investments (exporters, gold, global funds)
Within the stock universe, export-oriented companies and those with significant foreign currency revenues will benefit from the rupee decline. If gold is already a part of your portfolio, you will benefit if rupee slides further. Investments in global funds have already seen a surge in returns even if the NAV has not risen much, because their performance in rupee terms has been multiplied to the extent of the fall.

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

Dynamic Bond Funds

Invest Mutual Funds Online Download Mutual Fund Application Forms Apart from liquidity and returns, tax efficiency is another factor which should be taken into account for such investments. Today, while you're getting decent, predictable returns from bank fixed deposits, they, along with FMPs, can be ruled out as options because of the lack of interim liquidity. Hence, the only other option that you have is a dynamic bond fund. While investments in dynamic bond funds can be a compromise in terms of returns, they are extremely liquid and more tax efficient.   Some of the dynamic bond funds that you can invest in are: UTI Bond Fund, Birla Sun Life Dynamic Bond Fund Templeton India Income Fund ------------------------------------- Invest Mutual Funds Online Transact Mutual Fund Online   Download Mutual Fund Application Forms from all AMCs Download Mutual Fund Application Forms   Best Performing Mutual ...

L&T Tax Advantage

Best SIP Funds to Invest Online   The fund follows a growth approach to investing in quality stocks that have a large-cap tilt This large-cap tilted ELSS has fared consistently and fared better than its benchmark by posting a higher margin of outperformance. The fund follows a growth approach to investing in quality stocks that have a large-cap tilt, which is evident in its portfolio. The portfolio is further well diversified across market capitalisation and sectors with over 60 stocks finding a place in it. The upside with this fund is the fact that it has witnessed both down and up cycles of the market to come across as a winner in the long run. Do not doubt the fund based on its size and a few mediocre years of performance, because when analysing its rolling three year returns, the fund's performance stands out to qualify as a must have ELSS in one's portfolio. Stay invested through the lock-in and there are chances of benefiting from returns as well as tax savings will prov...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now