Share markets in India are presently trading lower. Sectoral indices are trading on a mixed note with stocks in the bank sector and metal sector witnessing maximum selling pressure.
The BSE Sensex is trading down by 94 points (down 0.2%), while the NSE Nifty is trading lower by 26 points (down 0.2%). The BSE Mid Cap index is trading up 0.1%, while the BSE Small Cap index is trading up by 0.2%.
In the news from the economy, the rupee weakened by 26 paise to 71 against the US dollar in opening trade session today on persistent demand for the US currency amid rising crude prices.
At the Interbank Foreign Exchange (Forex) market, the local currency opened lower at 70.95 a dollar and slipped further to hit its lifetime low of 71 from its previous close of 70.74.
So, 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.
Further, companies who import most of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure. 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.
Meanwhile, the recent weakness in the rupee versus the US dollar indicates further trouble for the market ahead. As seen from the below chart, when the Sensex corrected to its multi-year lows in March 2009, the rupee had also weakened by 21% in the past 9 months.
Similarly, when Sensex hit an all-time high in January 2018, the rupee had been gradually strengthening over the past year.
