Benefits of Weak Rupee on Stock Market

Benefits of Weak Rupee on Stock Market

Have you seen headlines about how the rupee’s value is decreasing versus the dollar? Did
you assume this spelled death for the Indian stock market just because the word
‘depreciation’ has a negative connotation?

You might want to reconsider.

Yes, any currency depreciation reduces the currency’s worth, but that is what large IT businesses rely on to increase earnings, resulting in a positive market.

Decoding Rupee Depreciation (Weak Rupee on Stock Market)

In a floating exchange rate system, where demand and supply determine the value of a
currency, depreciation refers to a decrease in the currency’s value.

As a result, rupee depreciation is defined as a decrease in the value of the rupee in relation
to the dollar, suggesting that the rupee has become less valuable and weaker in comparison
to the dollar.

For example, if the value of one US dollar rises from Rs 70 to Rs 75, the move is referred to
be rupee depreciation.

Currency appreciation, on the other hand, refers to a rise in the value of a currency. As a
result, rupee appreciation will result in the rupee gaining versus the dollar.

On Thursday, the rupee slipped 0.5 percent to 77.6313 per dollar. For the second time in a
week, this is a new low. Following that, the rupee rose somewhat when the central bank
intervened with several measures. Stocks also plummeted, with the Sensex Index falling 1.8 percent to a two-month low these are the effects of a Weak Rupee on Stock Market.

The majority of people equate rupee devaluation with economic hardship. While this may be
somewhat accurate, rumours of the Rupee falling may cause the stock market to rise.

Baffled? Let’s have a glance at how this occurs.

Companies who import goods like as oil and gas, food and drinks are the ones that suffer
the most from the rupee’s depreciation. This occurs as the Rupee’s value falls against the
US Dollar, making imports costlier. Importers of raw commodities, capital-intensive
industries and foreign borrowings will be the worst hit. This will result in the stock values of
these firms falling on the market.

Companies who rely on exports, on the other hand, will benefit the most from the rupee
devaluation, since exporting products becomes more profitable.

Sector to Watch

While a falling rupee has a negative overall impact on the stock market, there are some
industries that will profit.

A falling rupee will benefit export-oriented companies such as IT, textiles, pharmaceuticals,
and metals, which generate the majority of their income in US dollars.

Companies that import commodities such as oil, gas and FMCG are affected by the rupee’s
depreciation. This will be reflected in the stock price of the respective company. Automobiles, real estate, and infrastructure would all suffer as a result of the rupee’s depreciation.

However, it is important to remember that devaluation can alter market sentiment since it
reduces foreign investment. Foreign investors tend to withdraw out of assets when the rupee weakens, which can have a negative impact on the stock market.

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