Money Matters - Simplified

Currency fall spooks markets! Big companies loss or gain?

The top echelons of India Inc can rest in peace, the plunging rupee may spare them some wakeful nights! The currency dip may have scared the daylights out of most people and the markets, but the influential and the big companies lie cocooned!

Effected markets

The policy makers clench their teeth in fear at the Indian currency’s rapid fall and the punters are busy twiddling their thumbs. The main companies accounting for most of the ups and downs of the BSE Sensex are Mahindra & Mahindra, Tata MotorsBSE 0.80 %,Tata Consultancy ServicesBSE -1.65 %,Bajaj AutoBSE 2.47 %,BHELBSE 6.16 %, ITC, Infosys, Dr Reddy's Laboratories, Sun Pharmaceuticals, WiproBSE -0.60 %, and Cipla. The most surprising thing is that they have benefited from the plunging rupee confirms the ET. There is a reason for it the Forex spends are lesser than the total foreign exchange earnings. These companies will go on gaining no matter the rupee fall it seems provided the rest of the factors remain constant.

Heard about the Reliance Industries BSE 0.48 % that is controlled by Mukesh Ambani? The largest exporter has forex earnings that are less than the forex outgo but part of its earnings from the rupee are attached to the dollar, so it gains even when the rupee is weak. So is the 'appreciating rupee' a risk for the company? Maybe, say the experts, the flailing rupee may be a boost for the profits and margins of Reliance.

The rupee fall, benefitting companies

Pankaj Pandey, head of research at ICICI Securities was heard saying "Dollar appreciation would be positive for sectors such as IT and pharma, which have earnings in foreign currency.”

He is right as the biggest gainers according to the data are Wipro, Infosys BSE -2.20 % and TCS. In the line of order the data says on the net dollar earnings, the rupee gain for these will be 2,700 crore, 3,600 crores and 5,700 crores for these three business giants in the year 2013-14. Tata motors and TCS is the saving grace for Tatas .

Amit Khurana, director (research) at Dolat Capital passes his verdict "A weaker rupee would help India's exporters. Nearly 40% of the Sensexstocks benefit from the rupee's fall.” So who are the foreign exchange earners? The pharmaceuticals, automobiles, IT, hotels, and textiles, all these sectors have earned from this rupee downfall.

A leading industrialist was heard quoting "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.” The politicians are going to benefit too from this at the moment they are busy bringing the money they have stacked in the banks abroad for the elections and a strong dollar spells more money!

In less than 3 months the spiraling rupee has hit a low of almost 64.13 , leading to a widening of the current account deficit, a sweaty inflation and debts for many companies. It’s a wait and watch game folks as the Government and RBI are busy sharpening their financial skills.