Rupee will cool off may be in the next month but the affects of the
depreciation shock will be required to be absorbed by the Indian
economic growth. It means that now our focus is on controlling the rupee
free fall but the aftershocks will be more painful for the economy in
• Import oriented sectors will have to bite very hard
due to rising cost of import. Well oil marketing companies are the major
absorbers of the damage of rupee depreciation I find the affects to
spread like an malignant cancer across all sectors and all economic
corners of India. Nearby 50% of rupee depreciation between May 2011 and
May 20112 has added additional rupee cost
of imports to the nation by Rs.960
billion despite decline in the global prices of two major imported
products crude oil and thermal coal. When international crude prices are
hovering below the $100 barrel mark India still have to spend its import
bill of crude valuation coming around $125
barrel. We failed to get any
advantage of low valuation of the international crude prices.
• For more than a year we are busy fighting for the
inflation to come down but now the same inflation is jumping back into
the playground. With valuation of rupee around 55,FMCG companies are
just planning to pass of the extra cost of import of raw materials and
other stuffs to the consumers. Increase in grocery bills are going to
take an huge toll on consumption for FMCG segment. FMCG products such as
soaps, detergents, deodorants and shampoos, of which crude oil is an
input, are likely to become more expensive due to increase in import
bill of crude.
• Cost of import of iron ore and other raw materials
for production of steels and iron is spooking up the price of metals
resulting higher cost of projects. It has been found that project cost
are just taking a 100% jump backed by rupee and delay cost (idle
cost) in project execution. Lay-off
and close down of business units are or on the anvil.
• Poor performance of the market and weak sentiments
across the board is also taking a hard toll over the financial industry.
Brokerage income has become negligible, position are better not taken
and even in very small quantity. Many brokerage houses are changing
their business models and even business too. Payments of salaries are
now a nightmare for most of the brokerage houses. Many brokerage houses
have either scaled back or shut down their equity trading divisions. In
fact I find that many brokerage houses are available at cheap valuation
to those who wants to enter into this financial industry.
• Those who loved eating fried items will have to
take accept less and more savings of the doctors fess for treatment of
belly fat. Rising rupee has increased the cost of vegetable oil. For
instance, in November-December 2011, the price of refined soya oil shot
up by Rs.75 per 10 kg from
Rs.724 and now its scaling to
• Foreign education has become costly that many
students are making an bee line in front of domestic colleges, shedding
of their dreams of overseas degrees. For example with the rupee
weakening, the burden has increased. The rent ($378) of a room he shares
with friends was Rs.17,000 (at
Rs.45/$) in mid-August 2011 when
he went. Now, it is Rs.20412 (Rs.54./$).
A meal ($6) which cost him Rs.270
then now costs Rs.324.
• The falling rupee is bad news for itinerant Indians
and vacationers to a foreign country. Air fares are going up due to an
increase in fuel surcharge. The stay will be costlier by at least 37% to
8%. Also, shopping can become expensive by 7%.
• Delay in project execution and eliminating projects
results to less revenue generation for the government through customs
and excise duties. Indirect tax collection will be less compared to
targeted levels. Weak consumption will also reduce manufacturing
activities resulting less indirect tax collection for the government.
The rupee depreciation has erased the financial performance of the
Indian companies for the next 1 more quarter if taken on a conservative
• Power thermal power plants are expected to face
some strain on account of higher import costs of ferrous metals and
petroleum products, which in turn are expected to remain firm in the
near future. Power equipments which are mostly imported will find an
substantial jump in its project costs resulting more slow addition of
works for the industry.
• Fertilizers industry imports about 50% of its raw
material requirement. Potassium chloride is one of the major import
items and a decline is already being observed in the same. This trend is
likely to continue in the coming months.
Well I am not going to deject my reader’s heart with
all negativism. I have couple of positive industry but their
profitability will be capped to their end and will not pass to the
• Pharma industry is going to benefit from the rupee
depreciation for Fy 2012-13 since their products are mostly exported.
More over I find the sector to be under mixed bag due to import of its
raw materials which all affect the financial performance of the this
• Gems and jewellery sector is also one of the
industry which is going to gain from export of its business.
• Textiles industry is going to benefit with easing
of cotton and cotton yarn prices and improved export realizations, the
textile industry is expected to gain in the current forex environment.
Mark-to-market loses on existing hedged positions and suitability of new
hedging contracts would be crucial determinants of overall
But overall performance of the
Indian economy and its industries are going to be negative for the next
one more quarter in an conservative node. Recovery from the down slide
will be time consuming and will be severely dependent on global and
macro factors. I find RBI will have minimum space of easing interest
rates since inflation will be back due to rising cost of input. Going
through the above affects of rupee depreciation I find the financial
performance of the companies will be weak and sarcastic. India will face
more difficulty in controlling and reducing the fiscal gap. At the
present level of fiscal deficit Indian government will add another
Rs.38000cr as subsidy to OMC. Many brokerage houses will prompt its
investors by picking stocks at cheap valuation. Well valuation will be
very cheap but investments should be made predominantly in large caps to
avoid further massive losses from down side compared to investment in
mid cap or small cap. One should not get carried away by value pick tag