Source: Economic Times
Eleven companies that account for nearly 45% of the weightage of the BSE Sensex - ITC, Infosys, Tata Motors, Mahindra & Mahindra, Dr Reddy's Laboratories, Tata Consultancy Services, Sun Pharmaceuticals, Wipro, Bajaj Auto, Cipla and BHEL - benefit from a weakening rupee, according to numbers crunched by ET. The reason is simple: the total foreign exchange earnings of these firms are far greater than their forex spends. The more the rupee falls, the more these companies gain, other things remaining constant.
That's not all. Even Mukesh Ambani-controlled Reliance Industries - the country's largest exporter - gains from a weak rupee. While its forex outgo is more than its forex earnings, a significant part of its rupee earnings are pegged to the dollar. Therefore, a weakening rupee adds to Reliance's margins and profits, and most analysts cite an 'appreciating rupee' as a risk factor for the company.
The three biggest gainers are the IT heavyweights - TCS, Infosys and Wipro. At 65 to a dollar, the three will approximately gain an additional 5,700 crore, 3,600 crore and 2,700 crore, respectively, on net dollar earnings for 2013-14. Among the country's big business groups, the Tatas, thanks largely to TCS and Tata Motors, stand to gain from a depreciating rupee. "A weaker rupee would help India's exporters. Nearly 40% of the Sensex stocks benefit from the rupee's fall," said Amit Khurana, director (research) at Dolat Capital.
It's not just about individual companies. A raft of sectors such as IT, pharmaceuticals, hotels, textiles and automobiles benefit from a weak rupee as these are all net foreign exchange earners.
"Dollar appreciation would be positive for sectors such as IT and pharma, which have earnings in foreign currency," said Pankaj Pandey, head of research at ICICI Securities.
"The best business model anyone can have is to spend in rupees and earn in dollars, which is what the big boys of India Inc, including the top IT companies, excel in," said a leading industrialist, requesting anonymity.
If on the one hand the biggest industrialists and Sensex companies are 'hedged' against the falling rupee, so are India's most powerful and the most influential. If you believe drawing room gossip now fast spilling onto the streets, it is said the money of the political class stashed abroad is brought back to fund elections. A weak rupee means politicians and others bringing back the money are able to get greater bang for their buck, and it is in their interest that the dollar remains strong in this period.
Curiously, this is not the first time the rupee has depreciated in the run-up to elections, which were rumoured to take place by the year-end but now appear more likely in March-May 2014. In 1996, the rupee depreciated by nearly 10% in the 12 months leading up to the elections. And in 2009, it fell by 18% in the run-up to the polls. Laveesh Bhandari, founder of Indicus Analytics, an economic research firm, offers an economist's justification for this phenomenon: "Typically, governments overspend as elections approach.
This causes the rupee to depreciate, which then forces the government to intervene and try to prop up the currency."
The rupee, which hit an all-time low of 64.13 on Tuesday, has been on a downward spiral since May and has lost 16% against the dollar in less than three months. A sharply declining rupee stokes inflation, widens the current account deficit, impacts investor sentiment and creates stress for companies with high exposure to foreign debt. The government and the Reserve Bank of India have taken several measures to stem the decline, but have met with little success so far. Some economists question the panic in the markets and the wisdom of the government and RBI in intervening aggressively to defend the rupee. "The exchange rate has created more panic than it should. The fact that RBI and the government are taking calibrated steps to check exchange rate has led to fears as investors feel the authorities are also panicking. This is despite the fact that there have been positive steps in terms of policy," said Madan Sabnavis, chief economist, CARE Ratings.