Sunil Kumar Katke
A country’s economy is determined by the direction in which its currency is headed versus the benchmark USD. Lately, the strengthening of USD against global currencies hit by the pandemic has led to the rupee depreciation to levels above Rs. 76 per USD mark as on March 23.
The depreciation in rupee is largely guided by the fall in equity markets owing to the economic growth concerns due to the Covid-19 pandemic where almost all stock markets have corrected by decent margins.
Most of the stocks have tumbled to their multi-year lows along with the index itself, supported by large liquidations fuelled by the ongoing concerns with the NPAs of banking channel and revenue losses across sectors due to the pandemic.
Depreciating rupee is like a double-edged sword where the importers will end up paying a higher price for goods/services purchased, and exporters ending up receiving discounted credit. Since most of the countries have isolated their borders to tackle the pandemic, global trades are hit, leading to losses across sectors.
The lower crude oil prices failed to provide short term relief to the currency. However, we may see its positive impact in the medium to long term considering we were a net importer of the black gold (Crude oil).
As we look forward, the depreciating rupee may attract investors looking for value for their money with hopes of a strong bounce-back depending on how we tackle the threat of COVID-19 in a densely populated country like India.
The rupee depreciation may continue in the short term and may touch levels of 76.75 to 77 ranges which can be used for selling USD targeting levels of Rs.74 in a couple of month’s time.
Traders may look at these levels for a sell and rollover strategy in futures platform, eyeing a premium of Rs. 0.20 every time they roll over their positions.
To sum it up, it’s an opportunity for investors for bottom fishing of bluechip stocks with a positive outlook in the long term, considering our ability to bounce back as a growing economy of the world.
(The author is Business Head – Commodity and Currency, Axis Securities)
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