Rupee depreciation and its impact on indian industries
• NAETHRA GOWRI T
• SHOBANA R
• JEGADEESHWARI R
• SINDHU G
Effects of rupee depreciation
Causes of rupee depreciation on Indian economy
Impact of rupee depreciation on the Indian industries
Currency depreciation is the loss of value of a country's
currency with respect to another country’s currency.
Let us assume 1$ = 1 Rupee
Americans own $100 and the Indians own Rs.100
If India buys or imports Rs. 5 worth of product from USA then
India would have Rs. 95 and USA would have $105
USA is 10.52% wealthier now
$ 1 = Rs. 1.10
Effect on If Rupee DEPRECIATES
from Rs. 60/- to Rs. 65/
If Rupee APPRECIATES
from Rs. 60/- to Rs. 57/-
IMPORTS BECOME COSTLIER
for each USD importer have to
pay Rs 5/- more
for each USD importer
have to pay Rs. 3 less
EXPORTERS EARN MORE
For each Dollar, the exporter
will get Rs. 5 more
EXPORTERS EARN LESS
For each dollar, now the
exporter will get Rs. 3 less.
CAUSES FOR RUPEE DEPRECIATION
Widening current account deficit
Low forex reserves: Enough to cover imports of only seven months.
Growth slowdown: India's GDP growth fell to a decade low of 4.7% in 12-13.
Fiscal deficit: (government expenditure >tax revenue)
Dependence on foreign money - Withdrawal of money by overseas
investors is leading to the weakness in the rupee.
Recovery in the US: The slow but steady recovery in the US is making USD
stronger against other currencies.
Stimulus withdrawal: Indications that the US may withdraw or ease the
fiscal stimulus package could potentially put the brakes on funds for
IMPACT OF RUPEE DEPRECIAITON ON INDIAN
The IT industry contributes 7.5% to India's GDP in 2012.
The industry has been growing at compounded annual growth rate (CAGR) of
17 per cent during 2007-12.
The industry has provided direct employment to 2.8 million people and
indirect employment to 8.9 million people.
The aggregate revenue of the industry is US$100 billion in 2012, where export
and domestic revenue stood at US$69.1 billion andUS$31.7 billion respectively.
The industry’s share of total Indian exports is about 25 per cent in FY2012
North America is the key market for exports of computer software and services;
58.8 per cent of India’s exports were to North America in 2011-12
CNX IT INDEX
The CNX IT Index represents about 13.69 % of the free float market
capitalization of the stocks listed on NSE and 97.13 % of the free float
market capitalization of the stocks forming part of the IT sector as on
December 31, 2013.
The total traded value for the last six months ending December 2013 of all
index constituents is approximately 10.34% of the traded value of all
stocks on the NSE and 92.84% of the traded value of the stocks forming
part of the IT sector.
TREND OF CNX IT INDEX AND
VALUE OF INR AGAINST USD
CNX IT Index Indian Rupee
CNX return 28.59%
IT return 65.33%
IMPACT OF RUPEE DEPRECIATION ON IT INDUSTRY
Depreciation of rupee’s value provide short-term benefits but in the long-
run it will affect signing of new contracts by domestic IT firms.
when the companies bid for fresh project, they do not know at what rate
they would hedge their contract - at Rs. 60, Rs. 65 or Rs. 70 to the US dollar.
With the problem of high volatility of the currency rate, It will be difficult to
fix the price for their new projects and convince their customer
Additionally, the gains from the falling rupee are not likely to be very
significant as most IT companies hedge their forex position.
Nasscom President Som Mittal told The Hindu. August 28, 2013
Pharmaceuticals sector is one of the key sectors where Indian companies have
created a global brand for themselves besides software.
Pharma industry contributes 5% in 2012 and 6.2% in 2013 to GDP.
In 2012, India contributed exports worth USD 15 billion to the global generics
market and almost 40% of exports were to the US alone.
The Pharma industry has performed well on exports having been increased from Rs
386 billion in 2008 to Rs 775 billion in 2012.
The pharmaceutical sector stands to benefit from a fall in the rupee, as between 60
and 80 per cent of its revenues come from exports.
COMPANIES (CNX PHARMA INDEX)
The CNX Pharma Index represents about 5.34% of the free float market
capitalization of the stocks listed on NSE and 80.89% of the free float market
capitalization of the stocks as on December 31, 2013.
1. Cadila Healthcare Ltd.
2. Cipla Ltd.
3. Divi's Laboratories Ltd.
4. Dr. Reddy's Laboratories Ltd.
5. GlaxoSmithKline Pharmaceuticals Ltd.
6. Glen mark Pharmaceuticals Ltd.
7. Lupin Ltd.
8. Piramal Enterprises Ltd.
9. Ranbaxy Laboratories Ltd.
10. Sun Pharmaceutical Industries Ltd.
IMPACT OF RUPEE DEPRECIATION ON PHARMA INDUSTRY
The Indian pharmaceutical industry imports more than 75 % of raw materials
for manufacturing purposes.
Rupee depreciation will increase the cost of imported raw materials.
Small and mid-cap companies will be more affected by the increasing cost of
raw materials than the major players who have a higher export component in
Small and mid-cap companies, which primarily cater to the domestic market,
are hit by increasing inflation and raw material costs.
Glenmark and Ranbaxy have a significant portion of their debt in foreign
currency. So export gains will be partially offset by debt and interest payments.
Profitability of companies is also affected by loans they owe in foreign
currency. Higher Dollar conversion rate invariably results in higher interest
and loan repayments. The additional debt burden adversely affects their
India has become one of the largest energy intensive countries
in the World.
In 2011-12, India was the fourth largest consumer of Crude Oil
and Natural Gas, in the world after the United States, China,
Energy has been universally recognized as one of the most
important inputs for economic growth
There is a strong two-way relationship between economic
development and energy consumption
Due to India’s economic rise, the demand for energy has grown at an
average of 3.6% per annum over the past 30 years.
Petroleum demand in the transport sector is expected to grow rapidly
in the coming years with rapid expansion of vehicle ownership.
The country relies on imports for a considerable amount of its energy
31% of the country's total imports are oil imports
COMPANIES (NSE CNX ENERGY INDEX)
1. Bharat Petroleum Corporation Ltd.
2. Cairn India Ltd.
3. GAIL (India) Ltd.
4. Indian Oil Corporation Ltd.
5. NTPC Ltd.
6. Oil & Natural Gas Corporation Ltd.
7. Power Grid Corporation of India Ltd.
8. Reliance Industries Ltd.
9. Reliance Power Ltd.
10. Tata Power Co. Ltd.
TREND OF CNX ENERGY INDEX AND VALUE
OF INR AGAINST USD
energy Dollar rate
CNX Return 28.59%
Energy Return 10.58%
INR - USD -16.29%
IMPACT OF RUPEE DEPRECIATION ON ENERGY SECTOR
• A sharp decline in the value of the rupee will affect the power generation
capability of power plants that are heavily dependent upon imported coal for
electricity generation. This would mean an increase in the level of energy deficit
in the country.
• A fall witnessed in power generation capacity is likely to have an adverse affect
on all the three sectors of the economy namely agriculture, industry and
• “ Rupee depreciation will have the highest impact on Indian Oil Corporation
(IOC) and Bharat Petroleum (BPCL) because 50 per cent of their total debt are
in foreign currencies in 2012-13” - Global rating agency Fitch
NTPC Ltd and Power Grid Corp. of India Ltd had around 30% of their
FY13 (year-end March) debt in foreign currency and have not hedged their
foreign currency exposures.
Reliance Industries Ltd had a significant proportion (92%) of its FY13
debt in foreign currency. However, RIL has a hedge, with both its raw
materials as well as final products priced in dollar.
At FY13 , RIL had also hedged its currency and interest rate exposures
through interest rate swaps (Rs.324 billion), currency swaps (Rs. 33 billion),
options (Rs.23 billion) and forward contracts (Rs. 894 billion). The hedging
covers the company’s debt, imports and its exports.
The major reasons for rupee depreciation are slow economic growth rate, weakening
capital inflows and widening current account deficit
Rupee depreciation will benefit the Export oriented IT sector only in the short –run.
And moreover many Pharma companies hold loan in foreign currencies that will
increase their cost of debt
Indian Energy sector that is hugely dependent on Imports are hit very badly by
weakening of rupee against USD
To stabilize the currency exchange rate The RBI has reduced the limit
for outbound investment and remittances from India , Restricts the import of gold
and oil by increasing the import duty, have increased the limit of FDI Investments
in 12sectors and enhanced FII limits in government and corporate bonds