A feeble rupee is not a good sign for the market as it indicates that foreign investors are bearish on the market and exiting their positions
Trading at its lowest level since December 2018, the Indian rupee opened lower by 10 paise at Rs 71.91 per dollar on August 23 versus the previous close of Rs 71.81.
The domestic currency looks set for the biggest monthly fall in six years as it is down 4.6 percent this month and 3.1 percent in 2019.
Chinese yuan's fall has also put pressure on emerging market currencies. As per Reuters, the yuan slumped to an 11-year low. Traditionally, Indian currency follows its Chinese counterpart as both countries aim to remain export competitive.
A feeble rupee is not a good sign for the market as it indicates that foreign investors are bearish and exiting their positions. At a time when the market has a lot to worry in terms of the trade war, weakening the economy and lacklustre corporate earnings, the fall in rupee can only aggravate the outflow of foreign funds.
However, there are select sectors and stocks that can help you reap profit despite rupee’s weakness, pharma and IT figure prominently among them.
Here are 10 stocks that are likely to gain from rupee's fall:
Ajit Mishra, Vice President, Research, Religare Broking
Infosys: The stock remains one of the preferred bet because of the company’s consistent performance, strong management, positive sector outlook and stable long term growth prospects.
"The company has near term challenges, but long-term growth outlook remains bright on the back of rupee's weakness, positive management guidance, large orders and higher payout to shareholders," said Mishra.
Tata Consultancy Services: India’s largest IT company offers its services to a wide range of industries such as BFSI, manufacturing, telecom, retail, transportation and insurance.
It has over 4.2 lakh consultants present in over 50 countries. In terms of revenue, 51 percent of its business comes from North America.
"We believe the company is well placed to benefit from the increasing demand for offshore IT services seen over the last decade. Further, the company’s wide experience and strong clientele would enable it to maintain its strong position in the IT space," Mishra pointed out.
Wipro: Wipro will be one of the beneficiaries of a falling rupee as it means higher dollar earnings for IT firms. "The exact impact of rupee depreciation depends upon each company’s hedging policy as well as the proportion of offshoring business. Besides this, other fundamentals aspects are also important for investing in a company," Mishra pointed out.
The analyst believes near-term challenges persist for the company as there is a weakness in a few verticals such as the capital markets segment in BFSI and manufacturing segment in Europe. However, the digital business has been performing well.
The company is likely to maintain a strong cash balance of over Rs 20,000 crore (post buyback) and boasts of strong free cash flow. It also trades at a discount to its peers indicating upside potential in the long-term.
Nikhil Shetty, Research Analyst, BP Equities
Divi's Labs: The company has no foreign exchange debt and has not hedged future revenues.
Its 70 percent of the revenue is in foreign exchange. "Rupee's fall will add to sales and margins as Divi's is a net exporter," said Shetty.
Sun Pharma: The company got a benefit of Rs 67.4 crore due to its foreign transactions as against a loss of Rs 90 crore in the previous year.
The company has a foreign exchange debt of Rs 6,422 crore and net foreign exchange exposure is 60-65 percent of revenue.
At operating level, the company’s EBITDA grew at 24.2 percent to Rs 1,996 crore while its margin expanded 166bps YoY that was aided by favourable gains in foreign currency (200bps). Falling rupee will add to sales and margins as it is a net exporter.
Anand Rathi Shares & Stock Brokers
Mphasis: The company has expertise in application development and maintenance, infrastructure outsourcing, and business and knowledge process outsourcing.
The company has won new deals in direct international business with TCV of $151 million in Q1FY20; 80 percent of deal wins is in the focus area of new-gen services.
"Going ahead, improvement in margins, momentum in deal wins, decent revenue growth coupled with rupee depreciation are the catalysts to drive strong earnings growth," said the brokerage.
Biocon: Biocon is one the largest and fully-integrated, innovation-led biopharmaceutical company emerging globally with presence in over 120 countries.
"We continue to expect the company to get benefits of the first wave of biosimilar commercialisation in the next two years, which should drive higher revenues and margins," said the brokerage, adding that the rupee's weakness will be a further catalyst for it.
Umesh Mehta, Head of Research, SAMCO Securities.
Balkrishna Industries: A competent off-highway tyre manufacturer, Balkrishna has a strong fundamental profile and is a global player with around 6 percent market share in the off-highway tyre industry.
Fine Organics: Fine Organics is likely to benefit from rupee’s decline as it generates around 60 percent of its revenues from exports.
Indo Count Industries: Indo Count Industries looks attractive as it exports to 54 countries across the globe and stands to benefit the most during currency fluctuations.Disclaimer: The views and investment tips expressed by analysts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.