Falling Rupee and Stocks .....

Weakness of Rupee is the headline of financial media for the past many weeks.But the case of our currency is not an isolated one and the currencies of many other  countries are also showing the same trend.Possibility of an early withdrawal of QE may be an important  reason for this  along with many other.Lot of amount bearing cheap interest rate originated from US are deployed in various assets across the globe .Even partial withdrawal of this money may create wide fluctuations in currency values especially in  countries like India with an unfavourable CAD position.But ultimately ,in a long run this withdrawal of money from various assets  and commodities may reduce the inflationary pressure which may  help the government to start aggressive rate cuts. If we take the case of India, even if WPI showing signs of cool off CPI is not giving any comfort. Only  Creating a strong and fair distribution channel and taking stern action against those who are unwilling to pass on the benefits of falling WPI to the end user  will ensure the reach of any benefit to the common man.Otherwise all these gains of falling WPI will ends in the hands of few middlemen and politicians and we can’t expect any significant reduction in CPI.

As investors in stocks ,we are always looking for opportunities to gain out of weakening rupee.But blindly selecting an export oriented  company may not save the purpose.Company’s obligations in the form of foreign debt which took at an earlier stage when rupee was in strength is playing the spoil spot of many companies in these days.This sharp crash in rupee value force them to pay back huge extra amount to settle the debt  which is beyond the ability of many companies .What I mean is, before selecting a company for investment based on ‘weak rupee ‘ theme we should also check the size of  obligation in foreign currency  and their ability to repay it .Normally IT and Pharma companies are first catching the attention during a weak rupee scenario. Major IT  companies are debt free  and immune from this threat.But many companies in this sector heavily depending non US countries mainly Europe for their business and the early signs of revival is visible only in US economy and no respite for EU countries .Such a situation may offset the possible gains due to weak rupee .More than that the currency hedge adopted by big players may limit their risk as well as gain.In the case of Pharma companies one should analyse the percentage of  export income and import of raw materials to get a clear picture. 

                                                                              Other than these two sectors another one which may benefit from the rupee weakness is rice exporting companies .If the earlier sign of monsoon is any indication ,there is no chances for any change in export policy of rice in this year.If it is the case ,companies from this sector may immensely benefit due to the current scenario.We should also watch the price trend of offerings  by other major rice producers in the world market to get a fair picture.Stock price of  companies  from this sector started to show some firmness in last few sessions but they are still at the lower level if we take a ten year statistics. Many of these companies  reported good numbers even in the  latest March quarter itself .Lakshmi Energy and Foods,Kohinoor Foods,KRBL,REI Agro,LT Foods ( Daawat)..etc are the major  listed players in this sector.I expect some out performance of companies from this sector in the ongoing FY...