After opening the day marginally lower, share markets in India witnessed negative trading activity throughout the day and ended the day in red. All sectoral indices traded in red, with stocks in the metal sector and stocks in the auto sector, leading the losses.
At the closing bell, the BSE Sensex stood lower by 509 points (down 1.3%) and the NSE Nifty closed down by 151 points (down 1.3%). The BSE Mid Cap index ended the day down 1.3%, while the BSE Small Cap index ended the day down 1.4%.
The rupee was trading at Rs 72.69 against the US$ in the afternoon session.
Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was down by 0.7% and the Shanghai Composite was down by 0.2%. The Nikkei 225 was up by 1.3%. Meanwhile, European markets were trading on a negative note. The FTSE 100 was down by 0.7%. The DAX was down by 0.7%, while the CAC 40 was down by 0.2%
The Indian rupee continued its slide today as it hit a new record low against the dollar. The rupee has been fallinglately on the back of many factors such as rising current account deficit, rising global crude oil prices, and tepid export growth.
Talking about currency wars and the falling rupee, we did a small exercise to understand the impact of the weak rupee on the markets.
India is a net importer. This means if the rupee is weak, the cost of imports increases and value of the export decreases – resulting in a widening current account deficit.
High Imports + Weak Rupee = Widening Current Account Deficit.
A high current account deficit also impacts the government’s spending power.
Also, companies which import raw material witness pressure on their margins and profitably.
So, this looks quite negative on the face of it. So, it’s not surprising that markets get volatile when the currency depreciates.
Look at Indian rupee against the dollar from 1990. It has deprecated at a compounded annual rate of 5%.
