Dollar Touching 58 : Who is Gaining and Who is Losing?

Well! Few days back, Indian rupees hit the rock bottom of Rs 58.16 for $1.

Many economists believe it is because of lack of economic reforms and other governing issues have caused this problem.

It really does not matter what is your political inclination. You could be from left or right or even center.

However, every school of thought agrees on one point that the economy of the country is not doing well.

With rupees dropping such a low level, could be anyone who is gaining from all this.

In this article, we shall look at who is gaining and losing from the present situation.

First, let us see who all are gaining.

 According to experts domestic IT sector could see a growth because of softening of Indian currency.

The reason is simple, a stronger dollar will boost the sales of software companies in Indian rupees because most of these companies generate their half of the revenue from USA.

Arup Roy of Garter Research Director said this “Rupee depreciation will impact IT and off-shore service providers in a positive way if it sustains for a longer period say for this quarter. It will help in expanding their margins to a certain extent,”

In April, a rupee was around 50 compared to one dollar. If you see the share of Infosys then it was up half a percent, TCS or Tata Consultancy Services increased by .5 percent, while small companies like Infotech enterprise rose up to 3% and Hexware technology was up .3 percent.

So there is a positive sign for domestic IT companies from the downfall of rupee.

The other sector that could gain from a weaker rupee is Pharma. For example, Sun Pharma sales for US only were around 54 percent of its gross sale in fiscal year 2012-2013.

Similar, Dr Reddy’s generated 45 percent of its total revenue from North American Market only.

But the real gainers from the depreciation of rupees against US dollar would be our farmers and agriculture sector as a whole.

India is leading exporter of rice and wheat. However, the country has to face tough competition from rivals Vietnam and Pakistan which offers their rice at low price.

However, with the depreciation of rupees India’s export has again gone up and it has become number one exporter of rice again.

Degrading of rupees has given India an extra edge over its south Asian neighbors.

India’s 5 percent broken parboiled rice is begin offered around $427 per ton compared to $473 per ton for the same variety by the Pakistan.

Prices of Indian Basmati rice has decreased by $100/ton over the past month.

Moreover, with good monsoon India could explore new markets in European Union, Japan etc.

Similarly, India is also going to benefit in wheat export. Early, Russian and Ukrainian growers were dominating the wheat market but now with weakening of rupees could change the situation.

India wheat is offered for $332/ton compared to $355/ton for Australian Standard white wheat.

Thus, exports of various goods are expected to rise sharply once the monsoon is over and crops are harvested.

Similarly, there are many such agriculture products which are going to see increase in their exports.

This is very good news for agriculture sector and farmers as well.

Now, we should look at who are the losers.

Weaker currency of a country could easily weaken fiscal and economic reforms taken by its government. It is because of these reforms a country is able to get foreign direct investment.

There could be sudden rise in inflation hence cost of commodities could increase sharply hence affect the common man.

The mid-tier and low-tier handset manufacturers, who imports into India will suffer badly.

Power generating companies, Telcos and cement manufacturing companies are also going to lose badly.

If we see their performance in share markets then Reliance communication was down by 6.53 percent, Adani Power and Tata Power down by 3.31%, JSW Steel by 4.14% and state owned SAIL down by 2.06%.

It is because of their foreign currency borrowings these companies will hurt.

Moreover, oil companies are also going to lose from weakening of rupees.

Crude oil prices in dollars have remained stable at $101 per barrel. However for Indian oil it has jumped from 3.5 percent to Rs 5,751.83 a barrel.

Shares of BPCL were down 3 percent, HP or Hindustan Petroleum down 5.6 percent and Indian Oil Corp down 1.92 percent.

Therefore, you could clearly see Oil companies are the sole losers because of rupees depreciation.

It also means oil companies are going to increase prices of petrol and diesel hence putting burden on common man.

But above all, weakening of rupee might worsen the trade deficit. Next is it could also affect foreign investors to invest in India.

In a nutshell, prime gainers are small software firms, Pharma industry and the biggest gainer is our agriculture sector.

On the other hand, sole losers are oil companies, telecommunication companies, power companies and above all the country because confidence of foreign investors has been shaken.

In conclusion, I would say falling of rupees against dollar has both gainers and losers. However, if we take in account of overall situation then it is not good for the country as a whole.

Because it is going to increase our trade deficit. Let us see what happens next two months and what our policy makers are planning to reduce this depreciation.