In the last 18 months, the Indian Rupee has witnessed a turbulent time. The rupee has set one record low after another and there are concerns regarding India’s current account deficit already. Side by side, regular hike in oil prices and other necessary commodities are making the whole situation a bit trickier.
In this context, investors need to be wary of the rupee reality and strategize accordingly. Various countries are facing similar situations whereas currencies are falling against the US Dollar in the international market. Slow economic growth, inconsistent corporate earnings and market volatility are indeed significant parameters in this situation. So the rupee’s free-fall is happening because of a sell-off across emerging markets
It is important to remember certain aspects which can help in managing with a sustainable revenue model for any business set up or organisation.
Factors affecting the Indian Rupee
- Imports and Exports
- Interest rates
- Growth Rate
- Trade Deficit
- Performance of Equity Markets
- Foreign Exchange reserve and price of gold
- Macroeconomic policies
- Banking Capital
- Commodity Prices
- Geopolitical situation
Effects of Currency Devaluation
|1||Export becomes cheaper, leading to job creation in export sector|
|2||Small players benefit who are facing challenges with limited resources|
|3||Foreign education and travelling abroad will become expensive|
|4||Not the best time to go for big investments|
|5||Real estate business to take a hit, as electronics and other items will become costly|
|6||Overall costs for FMCG sector will go up, but revising costs is a tough job at present|
Currency devaluation has got its own advantages:
- Export becomes much cheaper and subsequently there is an increase in domestic demand that may ultimately usher in job creation in the export sector. In that case, higher level of export can help in a slight improvement of the current account deficit. Thus those who are in the export business, may restrategize to get the most of it.
- Many economists believe that devaluation of currency restores competitiveness in any market. A falling rupee can similarly help the small players who are facing challenges with limited resources. After all, devaluation is much better than internal devaluation where deflationary policies are not involved.
- As far as the FMCG (Fast Moving Consumer Goods) domain is concerned, rupee depreciation categorically leads to cost cutting. Revising prices is another tough job and maintaining a fine balance is a tricky task.
- Those who are in foreign education, rupee depreciation increases the burden and even those who have been planning to travel abroad, need to rephrase the budget.
- Things which have got costlier:
- Petrol & Diesel Prices
- Foreign Education
- Home Loan EMIs
- Imported goods
- Foreign Travel
- Prices of necessary commodities
- For investors, this is not the best time to go for big investments. They can rather decide on coming up with investments for shorter time span or time periods.
- As household budget is bound to face crisis to some extent, those who are the small players in the market can make the most of it. Price determination is definitely going to be the key factor at this moment. As India doesn’t have high amount of foreign debt, there isn’t any immediate possibility of free falling of rupee. But no doubt, household budgetary allocation is the challenging aspect.
- Those who are in construction or real estate business need to show caution. Because, electronics and other items will become costly.
- As Diwali is in few months, jewelry business owners etc. need to consider various price parameters to get the most of the festive season.