After opening the day on a negative note, the Indian share markets witnessed choppy trades and are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the healthcare sector and banking sector witnessing maximum selling pressure. Telecom stocks are trading in the green.
The BSE Sensex is trading down 95 points (down 0.3%) and the NSE Nifty is trading down 21 points (down 0.2%). The BSE Mid Cap index is trading up by 0.3%, while the BSE Small Cap index is trading up by 0.4%.
The rupee is trading at 64.38 to the US$. The rupee is scaling new highs everyday of late and is hovering near its 20-month high.
The above appreciation in the rupee comes as a welcome breather for importers in India. It helps importers to buy goods and services at a cheaper rate that earlier. This is vital for a developing economy that relies heavily on imports. So this is a good indication for the Indian economy as higher imports normally mean increased economic activity.
However, on the other hand, the rise in rupee has spelled trouble for exporters. The exporters are at a disadvantage owing to the currency appreciation as this renders their produce expensive in the international markets as compared to other competing nations whose currencies haven’t appreciated on a similar scale. This tends to take away a part of the advantage from Indian companies, which they enjoy due to their cost competitiveness.
While there are advantages as well as disadvantages of a rising rupee, one needs to understand whether the rise in the rupee is sustainable to derive any reasonable conclusion at this stage.
For one, the weakness of the US dollar is largely due to the relative unattractiveness of US assets. This is in part due to a very low interest rate regime prevalent in the US economy. Already there are indications that this low interest rate regime may not be sustainable for long. This means that US interest rates may go up and this may likely strengthen the US dollar.
Leave A Comment