The Indian currency on Tuesday broke its record of historical low (72.64) by hitting 72.97 against dollar owing to booming crude prices and higher US yields. Market analysts are worried about the currency recovery as the rupee is likely to depreciate to 73-74 against a dollar in the near future.
America’s 10-year treasury yield has hit its all-time high by crossing 3% and is expected to climb more. Apart from this, widening current account deficit (CAD) owing to higher crude oil prices are also weakening the Indian currency.
Experts suggest aggressive intervention and strong measures by the government to contain the depreciating value of rupee. Further, Reserve Bank of India (RBI) can also introduce interest rate hike to defend rupee.
Arun Thukral, MD & CEO, Axis Securities in a conversation with Moneycontrol stated, “We expect the USD-INR to stay in the 72-74 range in near term. The rupee has depreciated owing to the strength in the US dollar on the back of improving US economy and rising US interest rates.”
“Further rupee depreciation will call for concerns as thereafter RBI have to change stance and increase interest rates in forthcoming policy or maybe mid-way. Another thing to note is that historically RBI has maintained the gap between the US and domestic interest rate,” he added.
Currency free fall can risk inflation and may lead to high policy rates. Increase in interest rates will affect the revenue and profitability of companies operating in sectors like power, capital goods, and infrastructure.
Goldman Sachs in a note said “The ‘INR depreciation losers’ category includes Goldman Sachs (GS) covered stocks with high USD debts or a high USD cost base. The relative performance of winners vs. losers has moved closely with the INR move (vs. USD) over the past 12 months.”
Similarly, in a development, International Monetary Fund had calculated the real depreciation in rupee by 6-7% since the start of 2018. In actual terms, the rupee has experienced a fall of over 10% since the beginning of 2018.
Goldman Sachs listed 11 stocks which may loose the most because of USD debts. The list includes notable names like: IOC, BPCL, Hero MotoCorp, Shree Cements, Ambuja Cements, Havells India, HPCL, ACC, Exide Industries, IGL and Amara Raja Batteries.
The global investment bank also highlighted 14 INR depreciation beneficiaries which include sectors like IT and pharma.