Tips to fight the falling rupee
Rajiv Goel of Bombay Capital Services advises higher allocation towards fixed income assets - FDs or Income funds to earn that extra buck that will allow one to lighten the monthly burden.
June 10, 2013 / 03:37 PM IST
Foreign exchange as a subject is too vast to cover in this column but with the Indian Rupee on a rollercoaster ride with record breaking highs it is important for you as an investor to understand how does it impact you and more importantly how does the rupee in your bank account and purse stand at present?
The newspapers are full of talk of how a "depreciation in the rupee hurts corporate corridors or Dalal Street". The reasons for a depreciating rupee are plenty from a strengthening dollar, to a global recession, to a weak domestic economy and a widening fiscal deficit.
Also read: After close at 57.07/$ on Fri, here's where rupee may head
India is structurally an import intensive country as reflected in the high and persistent current account deficits month after month. Whatever the cause, for us "mango people", a falling rupee is going to hit where it hurts most – our wallets.
Rupee depreciation means that rupee has become less valuable with respect to dollar. On the other hand if the rupee moves downwards from 55 per dollar to 50 per dollar then it is said to appreciate.
For example, 1 USD = Rs 55 now. One year ago it was Rs 50. It means that with 1 dollar you can get more rupee as against last year. Exporters benefit from a rupee depreciation while importers benefit from rupee appreciation
High inflation has been pinching us for several years now and a falling / depreciating rupee makes imports costlier thereby pushing up the prices of almost everything from the atta / dal / chawal at your kirana store to the "imported fake" you buy from your friendly neighborhood smuggler to tuitions fees for your child studying overseas or that summer vacation you've saved years for!
The persistent decline in rupee should be a cause of concern for you whether you are a house wife or an investor. Even if prices of global oil and commodities decline thanks to the global slowdown, Indian consumers might not benefit as the currency depreciation will negate the impact.
In a nutshell, with the depreciation of the home currency, the cost of living goes up substantially and will compel you to tighten your purse strings whether at home or in your business or in your investments
And like everything else that is one more thing you must plan for. Consider a higher allocation towards fixed income assets – FDs or Income funds to earn that extra buck that will allow you to lighten the monthly burden.