The Indian Rupee is on a roll. In 38 sessions it has appreciated 8.46% from Rs 44.68 to a US Dollar to Rs 40.87 on 27th of April.
For the average investor, the severity of the move does not immediately sink in. Having seen stocks rise 20% in a single session an 8% rise may not really be appreciated if it is spread over 8 weeks. For the un-initiated, since the year 2000, the year on year change in the Rupee has been in a range of 0.56 % to 4.9%.
The biggest change in the Rupee-Dollar equation happened between 28th of June and 4th of July, 1991 when the Rupee depreciated by 24%. At that time too, Dr Manmohan Singh was on the scene, albeit in the avatar of a Finance Minister in Late Shri Narsimha Rao’s cabinet.
History apart, tough times require tough measures. I remember in 1991, ONGC , then known as Oil and Natural Gas Commission , could not bid for an Vietnamese oil field as the exchequer could not allocate the $ 7000 odd foreign exchange needed for the application. That was the time when Dr Singh had asked the RBI to freeze the release of foreign . The Forex reserves were around $ 1 billion, just enough to meet 2.5 weeks Forex requirements. The rupee was devalued by 20% straight away. Imports became very costly and exports received a big boost.
Today Dr Singh and Mr. Chidambaram are fighting a different animal, inflation. The battle is being fought on all fronts. Industries are being asked to not to be too greedy (cement), excise duties have been reduced ( Petroleum products) and the Rupee is being allowed to appreciate so that some of the imported commodities like Crude cost lower.
A strengthening rupee is hurting exports as our goods and services become costlier and therefore uncompetitive. One might argue that other countries would also be seeing an appreciation of their currency, so essentially every body’s cost would rise. But every one is not in the same boat. Other currencies , with whom we compete, have seen a lower appreciation, giving them an edge.
The markets, for some reason or the other, have not raised an alarm as yet. But they may soon. IT majors have guided Rupee at 43.5 to a Dollar. This appreciation will hurt their net margins by around 2%. Gems and Jewelry . Textiles, Leather Chemical and Engineering goods exporters would also get hurt. These sectors may do well on the bourses if the Rupee gives up some of the recent gains, but that would be a short term phenomenon.
One of the reasons for reasons for the Rupee depreciation is that FIIs have pumped in close to Rs 7200 cr , that is 75% of the FII investments this calendar year, between 5th March to 25th April.
The appreciating Rupee is an enigma to the FII. Should they invest more as they get more bang for their buck or bow out of the market.
While to you and me, the Sensex was still 495 points or 3.3% lower from the all time high mark of 14723 on Thursday, for the dollar investor the returns are 5.61% higher than what they were on February 9, when the Sensex touched the peak. The BSE Dollex 30 Index, that calculates the Sensex in dollar terms, was at an all time high mark of 2858. It was 2706 on February 9.
What can you do to make the best of this appreciating Rupee , if you are not into stocks? I suggest that for the next few years, plan a trek in the Himalayas each year. Be it the popular Pindari Glacier or the off beat Nanda Devi Sanctuary trek. These places will get more spoiled if you visit them later and the Global warming will take its toll as the glaciers recede and the snow melts. Cost of domestic travel would also increase over a period of time. The appreciating Rupee will ensure that your cost of traveling abroad will be much less than what it is today. Having seen ‘Incredible India’ you may turn to global trotting. You will be a better ambassador and a wise traveler at that.
MARKETS IN A CORRECTIVE MOOD
On a weekly closing basis the markets did not go any where. For the first four days if the week, the indices were in a tearing hurry to reclaim their earlier highs, but Friday’s collapse, brought them at the base of the rock, from where they began last week. Both the Sensex and the Nifty have made bearish formations on their daily as well as weekly charts. This indicates some more shedding of flab in the coming week.
Holiday shortened week
The only solace the bulls have this week, is that the markets will be open for only three days in the week – Monday, Thursday and Friday. On Tuesday the markets will be closed because of Maharashtra Day. We would also observe our Gujarat Day and the world will observe the Labour Day on May 1. On Wednesday, 2nd May the markets will be closed on account of Buddh Purnima.
If you are thinking, we are the only nation, who observe holidays, wait till you hear about the Japanese. The Tokyo Stock Exchange is observing 30th April as Showa Day holiday. Emperor Hirohito Showa was the 124th emperor of Japan and the longest ruling one as well. His birthday is observed on 29th April. But as the rules of the exchange are such that if a national holiday falls on a Sunday, then the next trading day is a holiday. So we have the 30th as a holiday.
The Japanese have another 3 holidays lined up this week. They will observe May 3rd, 4th and 5th as Constitutional Memorial Day, Greenery Day and Children’s Day respectively. But the Chinese take the cake, who will observe May 1 to May 7 as Labour Day.
The usual behaviour of the markets when there are more holidays is that traders try to avoid keeping large positions, resulting in thinner trade. Since the current trend is that of weakness, one would expect the markets to slide down further.
Major results behind us
Another reason for not so cheerful outlook is that most of the large caps, where good results were expected, have already come and as discussed in this column earlier, the rest of the results will now spread themselves thin in May and June.
US economy a concern
The attention this holiday shortened week, will be on economy. The US economy in Q1, i.e. Jan-March quarter is supposed to have grown at a rate of 1.3% as against expectations of 1.8%. Some of the fears that we have discussed earlier in this column are becoming a reality. The foreclosures in the sub-prime segment of US housing have risen a whopping 47%. Many loans have virtually no documents and wherever they exist, they are usually false. One Indian born Analyst in the US calls them ‘Hail Mary Loans’. The documentation is so weak that they could have only been given in the name of God.
Yet, the Dow went on to make a new high of 13148 and close at 13120. Don’t question the wisdom of the US investors. The logic lies in a weak dollar. The Dollar is losing against most Currencies. As around 50% or more of the revenue of the S&P 500 member companies come from exports, the buoyancy in the results is expected. That explains, why the US Dollar is at it’s weakest point in history and their corporate profits at an all time high.
Rupee and ECBs
The weakness of the Dollar should also explain why our corporate results may suffer going forward. Even a half a percent appreciation of the Rupee would have caused the IT majors to go into a tailspin, but here in 37 sessions the Rupee has appreciated 8.52% from Rs 44.68 to a US Dollar to Rs 40.87 and the BSE IT Index has not lost a single percentage point.
Another issue that the markets will watch this week is the stance of the Government on the inflows under the garb of ECBs. If there is any step to curb this inflow, the Dollar could appreciate but could hurt corporate profitability as their cost of funds could go up.
For the average investor, the severity of the move does not immediately sink in. Having seen stocks rise 20% in a single session an 8% rise may not really be appreciated if it is spread over 8 weeks. For the un-initiated, since the year 2000, the year on year change in the Rupee has been in a range of 0.56 % to 4.9%.
The biggest change in the Rupee-Dollar equation happened between 28th of June and 4th of July, 1991 when the Rupee depreciated by 24%. At that time too, Dr Manmohan Singh was on the scene, albeit in the avatar of a Finance Minister in Late Shri Narsimha Rao’s cabinet.
History apart, tough times require tough measures. I remember in 1991, ONGC , then known as Oil and Natural Gas Commission , could not bid for an Vietnamese oil field as the exchequer could not allocate the $ 7000 odd foreign exchange needed for the application. That was the time when Dr Singh had asked the RBI to freeze the release of foreign . The Forex reserves were around $ 1 billion, just enough to meet 2.5 weeks Forex requirements. The rupee was devalued by 20% straight away. Imports became very costly and exports received a big boost.
Today Dr Singh and Mr. Chidambaram are fighting a different animal, inflation. The battle is being fought on all fronts. Industries are being asked to not to be too greedy (cement), excise duties have been reduced ( Petroleum products) and the Rupee is being allowed to appreciate so that some of the imported commodities like Crude cost lower.
A strengthening rupee is hurting exports as our goods and services become costlier and therefore uncompetitive. One might argue that other countries would also be seeing an appreciation of their currency, so essentially every body’s cost would rise. But every one is not in the same boat. Other currencies , with whom we compete, have seen a lower appreciation, giving them an edge.
The markets, for some reason or the other, have not raised an alarm as yet. But they may soon. IT majors have guided Rupee at 43.5 to a Dollar. This appreciation will hurt their net margins by around 2%. Gems and Jewelry . Textiles, Leather Chemical and Engineering goods exporters would also get hurt. These sectors may do well on the bourses if the Rupee gives up some of the recent gains, but that would be a short term phenomenon.
One of the reasons for reasons for the Rupee depreciation is that FIIs have pumped in close to Rs 7200 cr , that is 75% of the FII investments this calendar year, between 5th March to 25th April.
The appreciating Rupee is an enigma to the FII. Should they invest more as they get more bang for their buck or bow out of the market.
While to you and me, the Sensex was still 495 points or 3.3% lower from the all time high mark of 14723 on Thursday, for the dollar investor the returns are 5.61% higher than what they were on February 9, when the Sensex touched the peak. The BSE Dollex 30 Index, that calculates the Sensex in dollar terms, was at an all time high mark of 2858. It was 2706 on February 9.
What can you do to make the best of this appreciating Rupee , if you are not into stocks? I suggest that for the next few years, plan a trek in the Himalayas each year. Be it the popular Pindari Glacier or the off beat Nanda Devi Sanctuary trek. These places will get more spoiled if you visit them later and the Global warming will take its toll as the glaciers recede and the snow melts. Cost of domestic travel would also increase over a period of time. The appreciating Rupee will ensure that your cost of traveling abroad will be much less than what it is today. Having seen ‘Incredible India’ you may turn to global trotting. You will be a better ambassador and a wise traveler at that.
MARKETS IN A CORRECTIVE MOOD
On a weekly closing basis the markets did not go any where. For the first four days if the week, the indices were in a tearing hurry to reclaim their earlier highs, but Friday’s collapse, brought them at the base of the rock, from where they began last week. Both the Sensex and the Nifty have made bearish formations on their daily as well as weekly charts. This indicates some more shedding of flab in the coming week.
Holiday shortened week
The only solace the bulls have this week, is that the markets will be open for only three days in the week – Monday, Thursday and Friday. On Tuesday the markets will be closed because of Maharashtra Day. We would also observe our Gujarat Day and the world will observe the Labour Day on May 1. On Wednesday, 2nd May the markets will be closed on account of Buddh Purnima.
If you are thinking, we are the only nation, who observe holidays, wait till you hear about the Japanese. The Tokyo Stock Exchange is observing 30th April as Showa Day holiday. Emperor Hirohito Showa was the 124th emperor of Japan and the longest ruling one as well. His birthday is observed on 29th April. But as the rules of the exchange are such that if a national holiday falls on a Sunday, then the next trading day is a holiday. So we have the 30th as a holiday.
The Japanese have another 3 holidays lined up this week. They will observe May 3rd, 4th and 5th as Constitutional Memorial Day, Greenery Day and Children’s Day respectively. But the Chinese take the cake, who will observe May 1 to May 7 as Labour Day.
The usual behaviour of the markets when there are more holidays is that traders try to avoid keeping large positions, resulting in thinner trade. Since the current trend is that of weakness, one would expect the markets to slide down further.
Major results behind us
Another reason for not so cheerful outlook is that most of the large caps, where good results were expected, have already come and as discussed in this column earlier, the rest of the results will now spread themselves thin in May and June.
US economy a concern
The attention this holiday shortened week, will be on economy. The US economy in Q1, i.e. Jan-March quarter is supposed to have grown at a rate of 1.3% as against expectations of 1.8%. Some of the fears that we have discussed earlier in this column are becoming a reality. The foreclosures in the sub-prime segment of US housing have risen a whopping 47%. Many loans have virtually no documents and wherever they exist, they are usually false. One Indian born Analyst in the US calls them ‘Hail Mary Loans’. The documentation is so weak that they could have only been given in the name of God.
Yet, the Dow went on to make a new high of 13148 and close at 13120. Don’t question the wisdom of the US investors. The logic lies in a weak dollar. The Dollar is losing against most Currencies. As around 50% or more of the revenue of the S&P 500 member companies come from exports, the buoyancy in the results is expected. That explains, why the US Dollar is at it’s weakest point in history and their corporate profits at an all time high.
Rupee and ECBs
The weakness of the Dollar should also explain why our corporate results may suffer going forward. Even a half a percent appreciation of the Rupee would have caused the IT majors to go into a tailspin, but here in 37 sessions the Rupee has appreciated 8.52% from Rs 44.68 to a US Dollar to Rs 40.87 and the BSE IT Index has not lost a single percentage point.
Another issue that the markets will watch this week is the stance of the Government on the inflows under the garb of ECBs. If there is any step to curb this inflow, the Dollar could appreciate but could hurt corporate profitability as their cost of funds could go up.
