Falling rupee keeps IT hot, douses rate-cut hopes: Experts

Moneycontrol Bureau

The focus of India indices seems to have suddenly shifted from the next big event of Reserve Bank of India policy latert this month to rupee's sharp and rapid depreciation against dollar. Most experts agreed that trend for markets and stock specific investments will now be defined more by rupee’s movement against dollar.

Rupee today hit an all-time low of 58 against dollar due to strengthening US currency.

They advised to keep away from rate sensitive sectors as banking and auto as RBI is unlikely to provide a repo cut after steep fall in Indian currency. IT and pharma companies which generate majority of their revenues through exports would now be back in favour.

Also read: USD at Rs 60? Why govt should let the rupee fall

“Unless we see some improvement in the current account deficit and the trade deficit numbers, it is highly unlikely that the RBI will follow easy money policy. So, we are back to where we started a few months ago – focusing on the rupee and naturally I think the markets would now start focusing on the exporters rather than the interest rate sensitives,” Dipan Mehta member of BSE and NSE said.

SP Tulsian of sptulsian.com advised that among IT and pharma companies investors should go for the larger companies and avoid long position in the midcap stocks.

“If somebody still wants to have the midcap stocks in their portfolio because of this rupee weakness they can look for few IT stocks like Hexaware Technologies, Geometric at the current level, but I would not advise that in case of the pharma. Better look for the larger ones like Dr Reddys, Lupin or maybe the stocks like Sun Pharma,” he added.

Mehta believes that June to September quarter may turn out to be a very good period for IT companies and market will start discounting this well in advance. He advised to remain focused on the IT companies that have delivered good results for past two-three quarters such as TCS and HCL Technologies among large caps and Mindtree, CMC and KPIT Cummins among mid caps.

“IT is again a sector once should slightly get overweight on given that the government and RBI and all are kind of comfortable with the rupee being at these levels and may be depreciating even further,” Mehta added. Margin expansion, topline, bottomline growth in IT companies can be expected by street going forward.

Post, economic growth hitting decadal low of 5 percent and visible decline in April inflation investors and experts were expecting the central bank to provide at least 25 bps cut in repo rate in June policy, however rupee decline has now doused rate-cut hopes. Thus, most experts now believe that RBI policy will be a non-event for indices.

“The focus will shift to the monsoon and thereafter the earnings season in July or so. For the time being no major trigger at least expected for the upside. So, may be you could see some more sideways movement for the rest of the month – may be into July as well,” Mehta said while giving his opinion on future market trend.  

Experts also advised market participants to stay away from the companies with huge foreign exchange debt like oil marketing companies and companies like Bharti Airtel, Renuka Sugar, JP Associates and Jet Airways as it will be seen quite negatively by the market.

“Diesel under-recovery which got pruned to a level of close to Rs 5/liter will again get enlarged. That will be seen a big problematic thing for the government as well as for the OMCs,” Tulsian noted. 

Weakening rupee is likely to dent revenues of OMCs like Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) and  Indian Oil Corp by Rs 22,000 crore in last month due to under recoveries, reported CNBC-TV18. A one unit movement in the rupee against the dollar impacts under-recoveries (loss incurred due to sale of fuel products on government rates) by around Rs 9000 crore.