Effect of Rupee Movement On Stock Prices

Effect of Rupee Movement On Stock Prices

 

Rupee is again near its lows against dollar. In recent past rupee movement has been quite volatile and this volatility can be attributed to factors like Government Policies, Interest Rate Scenario and demand and supply imbalance. Although as an individual stock market investor we cannot control volatility but we can definitely device some strategies which will enhance our returns. If you can proactively sense the direction of rupee movement (either up or down) you can use it to your advantage by capitalizing on price fluctuation of exchange rate sensitive stocks.

In this article we will identify exchange rate sensitive sectors and stocks in Indian stock market and try to understand the correlation between stock price and exchange rate. Individual investors can exploit this knowledge to earn appreciable returns in short term.

Impact of Exchange Rate Fluctuation

Indian companies can be divided into two groups based on the impact of currency fluctuation on their stock price and profitability:

1. Net Exporters – These companies sell product to outside world and receive payment in foreign currency (be it dollar, pound, euro etc). Whenever rupee appreciates as compared to these currencies, companies are exposed to translation loss as they can buy fewer rupees with same amount of foreign currency. This translation loss hurts their profitability since the raw material cost is in terms of rupees. Similarly, company’s profitability increases in case of rupee depreciation.
2. Net Importers – These companies buy product from outside world and make payment in foreign currency. Whenever rupee appreciates they are able to buy more foreign currency for payment resulting in overall translation gain. Profitability of companies increases in this case and similarly, profitability decreases when rupee depreciates.

Choosing the sectors to invest

Now we know the broad impact of currency movement so let’s focus on the sectors where one should bet (long or short) in case of anticipated currency movement (up or down)

Information technology 

This is one of the sectors which are most sensitive to exchange rates. It falls into category of net exporter hence benefits from rupee weakness as compared to foreign currency. This is one of the recommended sectors to take exposure for short term as the stock price movements are in the tune of 4 to 5% in very short span of time.

Textiles 

This sector is a net exporter and receives most of the payment in dollar terms. It benefits once the rupee gets week.

Petrochemical 

Earnings in most businesses of this sector are linked to dollar as the key raw material i.e. crude oil is purchased in USD. Rupee appreciation benefits this sector in short and long term.

Pharmaceuticals 

This sector has exposure both in terms of export and import. They earn foreign currency through exports but they need it for importing various chemicals too. This sector is a tricky one with respect to exchange rates.

Auto 

This sector has considerable amount of income from export of vehicles. It benefits from rupee weakening but there is one more angle to it. Sometimes the parts they use for assembly are imported. The one who uses more indigenous parts benefits the most in case of rupee depreciation.

Summary of Buy/Sell decisions in Stock Market

Sector	Category	Rupee	Exposure
Information Technology	Exporter	Strong	Sell
		Weak	Buy
Textile	Exporter	Strong	Sell
		Weak	Buy
Petrochemical	Importer	Strong	Buy
		Weak	Sell
Pharmaceuticals	Exporter/Importer	Strong	Tricky
		Weak	Tricky
Auto	Exporter	Strong	Sell
		Weak	Buy

Conclusion

This article covers important sectors and you can use it as reference to take informed decision. There are a lot of other sectors which might get affected based on their foreign currency exposure. If you want to analyze impact of currency movement on a sector of your choice you need to focus on basic pointers like company status (net exporter or net importer) and how much hedging company does so as to mitigate the effect of exchange rate fluctuation on its profitability.

RAJIV KAPOOR
FCS
Company Secretary in Practice
9839034761

I AM YOUR WELL WISHER BUT ARE YOU YOUR OWN ??

I AM YOUR WELL WISHER BUT ARE YOU YOUR OWN ??

I wish all my friends to be healthy and wealthy. Discipline is the key for being healthy and wealthy. Follow regimental life-style for being healthy and disciplined investment plan for being wealthy.

Invest in Equity Mutual Funds for long term wealth creation. Have full faith and conviction in equities. Best way to invest in equities is through mutual funds and that too through SIP mode. Invest religiously and without predicting the sensex. Equities are NOT volatile in long run.

Someone who has made good money from equities would never share that fact with even a close friend, as that would lower his esteem in the eyes of his friend. He would always show that whatever he is, that’s because of his hard work in the calling in which he is actively engaged.

There would be many who would give casual negative remarks on equity investing. With due respect to the feelings of all those people who have actually had bad experience in equities, I would say that, they are pre-conceived and excessively biased.

Being disciplined in investment means remaining invested for long term and investing consistently over fairly large period of time. People blame equity investing  because they enter when sensex is high and exit when it sinks. They try to time the markets and there they fail.

No one can time equity markets hence best strategy to follow is to keep investing through SIP mode and if possible by investing more when markets not performing.  Equities give better returns than any other asset class including immovable properties.

One is happy appreciating his wealth in immovable asset class after holding it for fairly long period of time, but had the investment in equities been for the same period of time, then the returns might beat the returns from immovable properties.

We offer many on-line and automated facilities which will make your investing an enjoyable and blissful experience. Be your own well-wisher. Talk to me to evaluate your existing investments for free. I am passionate about helping friends to get wealthy.

Rajiv Kapoor
Kanpur
9839034761

Life Cycle and Wealth Cycle Stages - FIND YOUR CATEGORY

Life Cycle and Wealth Cycle Stages - AN ANALYSIS

The life cycle stages of an investor can be classified as follows :
o Childhood stage
o Young unmarried stage
o Young married with children stage
o Married with older children stage
o Pre-retirement stage
o Retirement stage

· The income level of investors, the saving potential, the time horizon and the risk appetite of the investor depend on his life cycle.

· Younger investors have higher income and saving potential, take longer term view and may be willing to take risks.

· Older investors may have limited income and saving, shorter time horizon, and unwilling to risk their savings.

· There are 3 wealth cycle stages for investors :

o Accumulation stage is when investors are earnings and have limited need for investment income. They focus on saving and accumulating wealth for the long term. Equity investments are preferred in this stage.

o Transition stage is when financial goals are approaching. Investors still earn incomes, but have also draw on their earnings. Investors choose balanced portfolios that have both debt and equity.

o Reaping stage or distribution stage in when investors need the income from their investment, and cannot save further. They reap the benefits of their savings. They prefer debt investments and preserving of capital at this stage.

· Inter generational fund transfer refers to transfer of wealth to an investor. The preferred investment avenue will depend on the life cycle and wealth cycle stage of the beneficiaries.

· Sudden wealth surge refers to winnings in games and lotteries. Investors should be advised to temporarily park their funds in money market investments and create a long term plan after thinking through the plan.

And Finally affluent investors are of two types :
Wealth preserving investors who are risk averse and like to invest in debt.

Wealth creating investors who prefer growth and are willing to take the risk of equity investments.

RAJIV KAPOOR
9839034761

WHY DO PEOPLE INVEST IN LIC POLICIES WHEN THE RETURNS ARE SO BAD ???

WHY DO PEOPLE INVEST IN LIC POLICIES....

People in India tend to believe that LIC has an implied govt guarantee. Most Indians looking for safety of their money, think LIC is the best for them. It is like saying that your money is safer in SBI & not in private banks !! Really ?

So the safety seekers are more likely to invest in LIC, even though the returns are very average in most LIC endowment based plans. If you are happy with 4% returns, all the best to you.

LIC has the most entrenched network of advisers & its a legacy of 50 plus years. It has become customary to buy LIC, atleast your dad is bound to recommend you the same once you start your first job.

However the fact is that the times when 4% returns from LIC were good(1950s to 1980s) are long gone. With inflation running 10% for a decade, LIC plans have been a big value destroyer for most. 

Unfortunately, it takes 2 decades for you to realize that you have lost money on LIC investment. So most people don’t even understand the 4% returns i am talking about from LIC.

The LIC agent is mostly a known social person from the same locality. It becomes almost obligatory to buy policy from agents, even if you know that you don’t understand the investment.

Also what is the adviser’s interest in pushing the plans ? Of course, LIC is one of the best in commission payouts largely because of the nature of the policies sold (endowment plans). 

Whats worse, there is no accountability on returns since most plans work on 20 plus years tenure. So you can’t even confront agent like you can in case of ULIP/market linked plans. You tend to feel that your investment are good & guaranteed !!

Most importantly, majority (tempted to say all) LIC agents almost have a similar pitch.They almost never talk to you about “annualized returns”. The pitch is “your money grows 4 times in 20 yrs…..6 times in 30 yrs, etc”. 

Most people can’t calculate what the annual % returns are. Fact is most returns are 3.5% to 5% max. But it is never stated clearly on paper & the agent gets away by quoting “additional bonus” & other stuff.

No clear track record of past annual returns % ( considering all bonuses) is disclosed by LIC. This actually helps the agent & LIC is not taking any efforts to curb this mis-selling. Who will buy any policy if it were known that returns will be 4% only ??

Hope the above points help you understand the key reasons why LIC & traditional endowment plans even by private insurers, still dominates the Indian market.

Happy Investing in Insurance Policies !!

Rajiv Kapoor
9839034761

I AM SO GRATEUL - THANKS

Thanks for every support, help and courtesy.

I am so grateful.

Even though having realized importance of financial planning and understanding strategies which create wealth, I made few mistakes early in life that prevented me to create more wealth than what have I created by now. This lead me to inquire from people and friends around, whether are they also committing similar mistakes?? The result was astounding. I realized that most of my friends did not commit any mistake because neither did they knew enough about financial planning nor they were aware about need and importance of investment and wealth creation strategies. For most of them to become rich was only through slogging, real estate or lottery.

Initially it was really difficult for me to prove my genuine intentions, gradually however I could prove my mettle and garner confidence, faith and credence of those who were apprehensive initially with my principles and concepts.

Having gained enough confidence in this area of knowledge and realizing that this can be part of my professional services as well, I started selling Mutual Funds and other investment and insurance products in a very humble way about four –five years back.

And since then there has been no turning back. I am happy to understand the power and the truth of the quote “Give out what you want to get back”. Selflessly, helping others has made me to be loaded with enough of information and knowledge that has immensely helped me to care for my own investment and wealth creation strategies.

I am grateful to all my friends who have been trusting me and seeking my help in their financial and investment decisions.  Their expectations has steered in me, the need to remain updated and equipped with enough of knowledge in this field which has eventually helped me in a big way.

I am happy that all those friends and clients who sought my advice for investing their hard earned money have already made good money out of the investments that they made and that number of investors are increasing every month most of whom are through referrals, which itself explains the level of confidence, affection and trust that I have received from you all.

Thanks for every support, help and courtesy.

I AM SO GRATEFUL.

RAJIV KAPOOR

9839034761