The Hindu Business Line : Re @ 44: Analysts see no immediate impact on equities

Mumbai/Kolkata, Aug. 26 Marketmen believe the weakening rupee, which breached the crucial 44 mark against the US dollar, may not impact the equity markets, at least in the short-term.

FIIs turn sellers

Mr Amitabh Chakraborty of Religare said, “If demand from the US does not go up, the rupee depreciation may not have the desired effect on the Indian stocks. The current relative weakness of euro against the rupee may not also have much real term impact in the short term on the equities as exports to Eurozone is relatively smaller.” FIIs have been net sellers everyday since last Wednesday. A weaker rupee could further increase outflows, said market players.

Mr V.K. Sharma, Whole-time Director and Head of Research at Anagram Stock Broking, is of the view that the slowdown in the US economy seems to have already been priced in and also that the IT companies have not raised their annual guidance in dollar earnings. As of now, a weak US economy would not affect the Indian markets too much, he said.

“The FIIs seem to be selling rupee and buying dollar; this has been the case in the past 15-20 days. You can expect more selling by the FIIs now,” said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

Temporary phenomenon

FIIs are likely to sell irrespective of how good valuations are, since the conditions in the US do not look that good, Mr Agarwal said. “The selling by FIIs is a temporary phenomenon, and has been happening mainly because they are unwinding their P-Note positions in keeping with the regulations,” according Mr V.K. Sharma

A strong dollar usually means good news for exporting companies. However, the slowdown in the US complicates the situation for them; in addition, import of raw materials would be more expensive for these companies.

According to Mr Gul Teckchandani, an independent market analyst, “All the exporters, be it in IT, commodities, engineering, hotels or petroleum products would gain from the depreciating rupee. This would, in turn, be positive on the equity prices.”

Forex deals

“The currency market fluctuations now may have a different impact compared with earlier ones this year. This is because the banks, who had sold the futures and options contracts, are currently on a sticky wicket over the past forex losses suffered by the exporters. According to a school of thought, the legality of many of such contracts is questionable; hence may not be enforceable under the law. If that is the reality, the losses on account of forex deals may be written back. Currently, banks and exporters are more cautious in taking or selling a cover or the extent of the cover,” Mr V.K. Sharma, said.

Those companies that have hedged themselves against the dollar will be the ones that will benefit from a weakening rupee, added Mr Sharma. Mr Arun Kejriwal of KRIS Securities, said: “Rupee has not touched its bottom. What is surprising is the intensity and extent of the current movement.”