The Indian rupee is falling fast-- and there are both winners and losers
- One of the biggest reasons for the dollar getting stronger is Donald Trump's trade war against China.
- Traders around the world are are betting on the greenback that is considered to be the safest global currency.
- Indian currency took 18 days to give up all the gains made in 42 sessions before that.
The Indian rupee is near its weakest level against the dollar this year. And the fall has been sharper in the last three weeks. One of the biggest reasons for the dollar getting stronger is Donald Trump's trade war against China. Traders around the world are on the edge wondering how the negotiations between Washington and Beijing may pan out, and in the mean time, they are betting on the greenback that is considered to be the safest global currency.
For the Indian rupee, it's a double whammy-- both global risks and a local economic slowdown are weighing it down.
In fact, it took the Indian currency took 18 days to give up all the gains made in 42 sessions before that. Such a sharp fall, in such a quick time, only signals that traders are preparing to beat the rupee down further in the coming days. The Indian rupee's record low is near 74 against the dollar, and current it is trading at about 71.24.
The USDINR fell sharply for 42 sessions from 13 May to July 11. It recouped all its losses in 18 sessions from July… https://t.co/4tOaX2E2UD— Vijay L Bhambwani (@vijaybhambwani) 1565674408000
Aside from the global risk aversion, the weakness in rupee has many factors at play but most important among them is the market's perception of the strength of the Indian economy. The Reserve Bank of India cut its forecast for India's GDP growth in the current financial year to 6.9% from 7% earlier but many experts believe that the slowdown may be much worse than what the data suggests.
All crucial areas from employment to consumer demand, industrial growth to inflation, car sales to airline traffic, exports to credit growth, reflect a fragile economy with limited prospects of a quick recovery. The rupee is taking the fall as traders digest the flow of macro economic data, and the bleak future that they point towards.
The weakness in the rupee against the dollar may be further setback for some firms while for a few others it may be the much-needed cushion.
A weaker rupee will lend some competitiveness to India’s ailing exporters because it makes products cheaper for the buyer in dollar terms. However, it does not hold true for the entire economy.
A weaker rupee makes imports more expensive and exports cheaper. But some firms import inputs before exporting the final product. And therefore impact may differ from one sector to another. For example, the biggest impact of a weaker rupee will fall on firms that use crude oil as an input because India imports over 80% of all the crude oil it needs. A weaker rupee will increase the import bill.
Credit rating agency SMERA plotted the impact of rupee strength on specific sectors in an August 2017 report.
These sectors will benefit the most from a weaker rupee:
Data in $, billion
The benefit to the sectors, essentially, stems from the fact that they export a lot more than they import.
These are the sectors that will be hurt the most by a weaker rupee.
Weaker rupee might turn things around for TCS, Wipro and Infosys