 Rupee is weakening.

 One US dollar is around ` 72 currently.

 Experts believe that the fall can be up to ` 73-74.

 The rupee has slipped 12% (approx) in 2018.

 ` hits lowest level ever.

 Compared to the currencies of the other emerging

markets, fall of the rupee has been rather steep.

 Current Account Deficit(CAD) is breaking record.

India imports 80% (approx.) of its crude oil requirements
Hence import bill of crude oil has increased by 24%.(approx.)

2017-18 2018-19
88 bn $ 109 bn $

Putting
Crude oil pressure on Costlier
becoming more domestic fuel transportation
expensive prices

Costlier goods
&
Services
 Currency depreciation refers to decrease in
the value of domestic currency in terms of
foreign currency . It makes the domestic
currency less valuable and more of it is
required to buy the foreign currency.
 The demand of foreign exchange comes from
those people who use it to make payment in
foreign currency. It is demanded by the
domestic residents for the following reasons-

1. Imports of goods and services.

2. Tourism.
3.Universal transfers sent aboard.
4.Purchase of assets in foreign countries
5.Speculation:
Demand curve of foreign
Exchange slope
downwards due to inverse
Relationship between
demand for foreign
exchange and foreign
exchange rate.

The negatively sloped

demand curve (DD) shows
that more foreign
exchange(OQ1) is
demanded at a low rate of
exchange(OR1), Whereas ,
demand for US $ falls to
OQ2 when exchange rate
rises to (OR2)
 The biggest impact is on the import bill. The
reason is simple. It takes more rupees to pay
for the same quantum of imports.

 More expensive imports are likely to drive

inflation upward. Specially in India where
input products constitute a large part of our
imports.
 70% of crude oil of India is imported

It requires more USD

Higher price
Higher oil Costlier of
Prices transportation commodities

Stocks
inflation
 Exporters technically earn more rupee in
relation to the same amount of dollars. But
that does not happen because the moment
the currency depreciates the buyer(importers)
renegotiates the contract.

 Due to currency depreciation exports will not

rise in a fast pace, because we are not
competitive enough, and there is an issue
with our quality too.
The Gainer The Loser
Exporters Importer
Firms with large Forex
debt.
 1.Meaning: The current account deficit is a
measurement of a countries' trade where the
value of the goods and services it imports
exceeds the value of the goods and services it
exports.
 2.Current A/C Gap Widens:

Q1($ B n) (Y o Y) Q1 ( Y o Y) (%)

15.8 2.5

15 2.4

India’s CAD stood at US $ 15.8 billion ( 2.4 % of GDP)

In Q1 of 2018-19 as compared with US $ 15.0 billion
(2.5 % of GDP) in Q1 of 2017-18
 3. Merchandise Trade GAP ($ B n) ( Y o Y)

45

41.9

The widening CAD on year-on-year (Y-O-Y) basis was primary

basis was primarily on account of a higher trade deficit at US$
45.7 billion as compared with US $ 41.9 billion a year ago.

 4. Q1 CAD at 5 year high of $ 15.8 billion.

 The financial market has taken a beating due
to the currency depreciation.
 Falling rupee has created risk aversion among
investors.
Abrupt and sizeable currency depreciation may scare foreign
investors who fear the currency may fall further

Leading them to pull portfolio investment out of the

country

Putting further downward pressure on the currency

 Volatility: Suddenly bouts of currency
depreciation has also increase the fear of
contagion.

 Lot of FII selling in the market (FII outflow)

are taking place.

 The yield rate has gone past 8%. High bond

yield is bad for bonds and also for
equities.(Because EPS decreases). Higher bond
yield may be a prelude to tighter policy and
lower growth expectations.
 In the financial account , net foreign direct investment (FDI) at
US $ 9.7 billion in Q1 of 2018-19 was higher than US $ 7.1
billion in Q1 of 2017-18.

 Portfolio investment recorded net outflow of US $ 8.1 billion in

Q1 of 2018-19 as compared with an inflow of US $ 12.5 billion
in Q1 last year on account of net sales in both the debt equity
market.

 NIFTY in `9.99
NIFTY in $ 0.12

 FII who are investing in NIFTY, despite the NIFTY moving

10%(INR) have not gained.

NIFTY in dollar terms is 0.12% (i.e. they have not gained anything)
 Withdrawal done by
Currency depreciation
investors on US$

Demand for $

In the first six months of 2018, the foreign investors have

withdrawn 48000 cr. (approx.) which is the highest outflow
In the last 10 years.
 Different input parts of some electronic items
such as Laptops, Televisions, Mobile phones etc
are mostly imported from other countries like
Japan, China, USA etc.

Price of Import
Price of
input of Import bill C.O.P electronic
electronic items
Items
 Palm Oil is used in various Food Industries,
Soaps, Detergents, Shampoos etc.

 Palm oil is imported from other countries.

Food items ,
Palm oil Soap,
price Detergents
Price
 Palm oil is used as a standard to determine
the prices of other edible oil.

Prices of other edible

Palm Oil Price
oil
 60-70% expenses of aviation sector are $
denominated.

 They have a huge chunk of expenses of fuel

which is again $ denominated.

 So as the fuel prices goes up it will directly

give a negative impact on Aviation
Companies.
 60% of the raw materials such as TiO2 and
ZnO are mostly $ denominated.

 As weaker in Indian currency the import bill

of such raw materials will go high.

 As a result the cost of manufacturing of

paint will go high which results in inflation.
 In media the distribution players Capex are $
denominated especially the set top box.

 This results a direct negative impact on Media

Sector.
 Most of the raw materials like pet coke &
diesel are imported from other countries.

 This gives a direct negative impact in

manufacturing cost on cement Sectors.

 As a result the price of cement will go higher.

 Steelmakers are to raise the price of steel as
imported costs of raw materials rise on rupee
depreciation.

 The increase is also the result of attempts by

manufacturers to plug the gap between
domestic and international steel prices.
Currently, Indian steel prices are at a 5-8 %
discount to the prevailing rate overseas.

 The prices of imported coking coal is a key raw

material in steelmakers has increased 14 % since
June( on a year-on-year basis).
 Most of the raw materials are imported from
other countries.

 As a weaker currency the import cost of these

items will go higher.

 This will cause the cost of production of the

automobiles.

 As a result the vehicle pries will also increase.

 If an Indian company defaults on its $ debt
and goes bankrupt then it will have a
contagion effect on all the banks that have
lent to that company.

 The other adverse affect is that liabilities on

NRE (Non Resident External) and foreign
currency deposits may increase because
depreciation in rupee.
 There has been some positive impact on the
pharma pack.

DIVIS LAB NO HEDGE

AUROBINDO & BIOCON PARTLY HEDGED

DRL,SUN PHARMA,LUPIN & LIMITED IMPACT

CADILA
 Takes Education
Indian students loan
education
studying abroad becomes
loan
more costly

Students need
to pay more
rupee for the
same amount
of loan taken.
 Foreign tourists
India rupee
will make more Because it is
becomes
& more tours to less costly
cheaper
India

Generation
of more
inflow of
money
YEAR USD INR
1947 1 1
1951 1 4.8
1966 1 6.35
1973 1 7.67
1975 1 8.7
1982 1 9.1
1985 1 12.36
1991 1 22.69
1992 1 25.92
1993 1 31.44
1996 1 35.43
1997 1 36.32
1998 1 41.27
2000 1 44.7
2004 1 45.32
2006 1 45.31
2008 1 46.1
2009 1 48.4
2012 1 53.32
2013 1 68.85
2014 1 61.058
2015 1 67.043
2016 1 66.67
2018 1 72.51
80
70
60
50
40
USD
30
INR
20
10
0
 US-China trade war.

 Impact of Turkey crisis.

 Impact on India from Britain’s exit from EU.

 US economy is doing well.

 US has increased duties on the goods to be
imported from China. In relation China has
also increased duties on the goods to be
imported from USA.
 Higher the interest rate

Leads to outflow of money from emerging market

bonds

Withdrawal done by investors in US dollar.

Demand for $ will increase

Value of Indian rupee falls

 In the last couple of months, the Turkish Lira
depreciated to 45%(approximately).

 This has resulted in a contagion effect.

 Influencing the international investors to pull

out the investments from Turkey, and also
from other countries( such as India) where
currency is depreciating.
 First impact would be visible on currency volatility as
there is a possibility of devaluation of the pound and
euro. With the pound expected to fall 20 percent in
case of a Brexit, Indian companies with sizeable
presence in the UK will have to bear the brunt. The
Indian government will however have to keep
watching currency based volatility , both in the short
and the medium term and also look at the impact on
overall trade. India will have to rework the proposed
free trade agreement with the single-currency bloc in
view of Brexit.

 UK has always been a gateway for Indian firms to

enter into EU. After Brexit, this will cause short-term
distress to Indian firms.
 Global financial market volatility can be
readily expected. Markets across the world
will tank. The pound will depreciate against
most major economies. India cannot remain
immune to this . Sensex and Nifty will tumble
in the short-run.

 Brexit adds significantly to pressures on the

rupee. While the rupee has depreciated by a
lower extent against the US dollar compared
to other emerging market currencies, that
could well be owing to RBI’s intervention to
stem volatility.
Economists call them leading economic
indicators because they measure the early
influencers on growth. Right now they report
that the economy is doing well. It has steady
growth, low unemployment, and little inflation.

There are six facts that tell you how the

economy is doing well.

 223,000 Jobs=Great: The U.S. economy

gained 223,000 jobs in August 2018.
 GDP Growth is 4.2 percent=Overheating.

 Durable Goods Orders Rose 1.0 Percent in

June = Healthy.

 Year Over Year Core Inflation Is 2.3 Percent =

Above Target.

 Stock Market out of a Six-Month

Correction=Healthy.

 Interest Rates Are Rising=Healthy.

 Rupee performed very badly in comparison to
US $, but in comparison to other currencies
such as Pound, Yen etc. it is not that bad.

 In last four years, the Indian currency

appreciated whooping 20% in relation to its
36 trading partners, but in relation to $, it
has depreciated.
No Reason for Panic, Says Arun Jaitley About the
Falling Rupee-

 Finance Minister Arun Jaitley said there is no reason "for the

world's fastest growing economy to come out with panic and
knee-jerk reactions" following reports of the Indian rupee
hitting a new low.

 The domestic economic situation and the global situation,

there are virtually no domestic reasons which are attributable
to this. The reasons are global. We must bear in mind that in
the last few months, the dollar has strengthened against
almost every currency. And therefore, most global currencies
have weekend viz-a-viz the dollar.
 "As far as most other currencies are concerned, the
rupee has consistently either strengthened or remained
in a range.

This he exemplified by stating that while in September

2013 the rupee stood at 101.42 against the pound, 84.47
against the euro and 0.64 against the yen, today it stands
at 92.05 against the pound, 83.12 against the euro and
0.64 against the yen.“

 "We are net buyers of oil, and therefore, by creating

shortages (in the US), oil price is temporarily raised, and
that adversely impacts us.“

 He also said even though India is not in the trade war

business, when a neighboring country decides to
devalue their currency, it has an adverse impact on
India.
 Economic Affairs Secretary Subhash Chandra Garg told The
Economic Times that foreign currency borrowers and importers
need not panic. "I have maintained that 68-70 perhaps is the
right level and I don't expect it to go beyond. There may be some
temporary factors that came into play last week but there is no
fundamental justification," he said, adding, so far, extraordinary
measures to defend the rupee are not warranted.

 "The numbers have also come for Q1 -the entire deficit on BoP
(balance of payments) basis is only $11 billion, which is only $3-
4 billion a month. That, in the context of India, is not very large
and we can take care of it. That is not to be taken too seriously,"
he told the daily.

 So the choices you have are either general inflationary effect or

spread of cost to a wider group of taxpayers or to specific
consumers . The most suitable section to bear this cost will need
to be decided," he explained.
 According to SEBI, there is unnecessary panic
in the market. But foreign investors are not
satisfied with the statement and so they are
exploring other investment decision

 RBI will increase its rates if inflation goes up.

 Global factors are responsible, but we need to
respond.

 While the Reserve Bank of India(RBI) has enough

fire-power to prevent a rapid slide in the rupees
value, but certain shocks to the economy cannot
be ruled out.

 It is advisable, that RBI and the government not

to lose their nerves, because macro-economic
numbers are far better now than earlier.