Share markets in India are presently trading marginally lower. Sectoral indices are trading on a negative note with stocks in the oil & gas sector and power sector witnessing maximum selling pressure.
The BSE Sensex is trading down by 90 points (down 0.3%), while the NSE Nifty is trading down by 46 points (down 0.4%). The BSE Mid Cap index is trading down by 1.2%, while the BSE Small Cap index is trading down by 1.6%.
The rupee is trading at 68.51 to the US$.
In news from the currency markets… Continuing its downtrend this week, the Indian rupee plunged by 30 paise in early trades today to hit a 19-month low of 68.54 against the US dollar. This is marked as the rupee’s lowest level against the dollar since November 2016.
The above depreciation for rupee is seen on the back of a strong month-end dollar demand from importers and banks amid sustained foreign capital outflows. Note that the rupee has been witnessing selling pressure against the US dollar since the start of this calendar year. This is evident from the chart below, which shows the quantum of US dollars a 100-rupee note can buy and how this rate has been declining over the past few months:
Indian Rupee in a Steep Decline
What does the fall in rupee mean for the Indian economy?
A depreciation in rupee means importers buying goods and services at a higher rate than earlier. This doesn’t bode well for a developing economy that relies heavily on imports.
Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil’s rising cost.
On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.
Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.