The present times are unnerving for the Indian investors as the market is witnessing fluctuation in the value of rupee. Mostly it is falling down. The unpredictable downward movement of rupee in the recent history has left the investors worried about which stocks to trade in.
The stock market has been a roller –coaster ride for the investors and in the last few days and certain questions have been frequently asked.
Is this the time to invest? Should the Indians staying abroad invest in India at the present situations?Well the answer to both according to me is ‘yes’. It’s anytime good to invest with eyes kept open to market trends.
The fall in a particular currency happens due to many factors. The major ones are:
1. Revoking of foreign investments this may be due to foreign policy or the foreign country’s internal policy changes. Or investor’s personal outlook or needs.
2. Less transactions in business accounts or the Current Account Deficit as in case of India.
3. Market running on sentimental trends rather than reasoning.
In India, the movement of rupee is directly associated with the foreign investments and their withdrawals so any investments by the foreign company if revoked leads to a steep fall in the value of rupee while CAD remains a major challenge.
The domestic investors should take this opportunity to invest in the following sectors:
IT sector — IT companies earn most of their revenues in dollars. So, each dollar earned abroad will now get them more rupees. An industry thumb rule says that every 100 basis points, or bps, rupee movement impacts operating margins of IT companies by 30-50 bps. But, we ought to keep in mind that fall does little to increase the demand for India’s IT exports. A sharp rise in exports happens only when there is huge spare capacity which, India does not have at present. So one needs to be vigilant on the entry and exit levels and must look for long term investments.
Pharmaceutical sector — expects big gains for the sector as exports account for 50% sales of most big pharmaceutical companies. However, the recent rupee fall may not yield immediate gains.
Oil and gas sector — though the crude shows declining trend it is a good sector to invest when the prices are low and exit at decent profit bookings, this is a good sector indeed due to fluctuating trends.
Power and Metal and Automobiles — These sectors my look weak initially but being a lucrative long term investment opportunity in the Indian markets and their continuous demands this sector is always good for investment in long terms.
These sectors that earn a big part of their revenues in dollars, so every dollar earned through exports means more rupees added. Special privilege should be given to the indigenous companies with no foreign investments or negligible FII. A weakening rupee hits India’s markets, which are highly sensitive to FII flows. The reason for this is simple. FIIs hold 24% of BSE-500 companies, and any fall in the rupee lowers their returns (they earn less in terms of dollar). This leads them to the exit door and weakens the rupee further as they sell their India investments and exchange rupees for dollars to invest somewhere else.
For the second part of the question :
It is always advisable to Indians staying abroad to take the fall in rupee as an opportunity to invest in the Indian market specially in the real estate and equity market.
For a person holding the dollar bills, mostly the non-resident Indians (NRI), it is surely an opportunity. A very simple interpretation is things become 20% cheaper for an NRI. For example, if a property in Mumbai was quoted at Rs 5 crore in January and is being offered at the same price even now, one has to pay 20% less than what would have been paid for it in January.
If buying equities is on mind the ‘proposition’ is even more attractive. Te fall of rupee indicates that effectively an NRI can buy Indian equities 20-30% lower than where they were at the beginning of the year. In the equities given the weak sentiments, the ‘sale’ may be on for some time. It is the time to look at Indian equities with an investment mindset. If one can invest in Indian stocks with a five-year time-frame, may be this is the time to enter.
However, the fall in rupee is considered bad news because at a basic level, rupee weakness signals that investors are losing faith in India and exiting their investments here in the belief that their money can earn better returns elsewhere. This is exactly what happened last month, when the dollar rose, it hinted at economic recovery in the US and said it might reduce the amount of dollars being injected into the system to support growth. Foreign investors, already nervous about India’s high current account deficit, or CAD, fell for the rising dollar took money out of India to invest there as “inflation-adjusted returns in developed markets started looking more attractive.”
The most advisable are :
- Avoid short- term entry an exits.
- Avoid new scrip.
- Set your bench marks and limits. Do not wait for very high returns on a particular stock. Profit booking figures must not be hypothetical.
- Be vigilant of market trends.
- Check doubly to be sure that you are investing in the right property.
And in case of heavy investments distribute your funds, don’t panic but wait for the corrections.
It is always advisable to consult a good financial adviser before making any investment, and study the trends and impacts directly or indirectly. After all, money matters.
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