Experts say that a weaker rupee can add to inflationary pressure, widen fiscal deficit and slow capital inflows. They feel steep depreciation in rupee may have adverse effect on business sentiments resulting in economic slowdown.
Impact of rupee depreciation on equity funds: Continuous depreciation of rupee creates volatility in secondary market resulting in capital outflow from equities. It may have an adverse impact on companies who have dependency on imported goods such as oil, automobile, electronics etc. However, export related sectors such as IT, pharma are placed well.
People who have exposure to global funds have seen a sharp appreciation in returns, providing justification to the belief that geographical diversification makes sense.
Impact of rupee depreciation on debt funds: Depreciating rupee may dampen prospects of interest rate cuts resulting in tight monetary policy. It also affects foreign capital inflows as a weak rupee sends negative signal to the market. Some fund managers believe that the long duration funds may not perform well during this period.
With widening current account deficit and capital outflows, steep depreciation in rupee has given another reason to RBI to refrain from cutting the key rates in the upcoming monetary policy review, feels Arvind Chari, Fund Manager- Fixed Income, Quantum MF. He expects liquid funds to perform well in the current market scenario. However, he too remains skeptical about the performance of long duration funds.
Ganti N Murty, Head Fixed Income, Peerless MF expects the rupee to continue to hover around Rs 58 to Rs 60 level in the coming days. In this market situation, investing in short duration funds could give good returns to the investors, he added.
Manish Bandi, Fund Manager, IIFL believes that the companies with higher dependency on domestic consumption may perform well in the present scenario. He pointed out that increasing exposure blindly to IT industries during rupee depreciation may sometimes prove wrong and advices that It is better to go through the individual company’s profile, overall revenue and past performance before investing in IT sector. The recent depreciation in rupee has sent negative signals to foreign investors especially those having short term investment horizon.
Kartik Jhaveri, Director Transcend Consulting feels that the market to adjust after sometime. He said that it would not have much impact on the market as there are other factors too which influence the market conditions.
