Ongoing Rupee rout : Double whammy for Investors and NRI's

The relentless depreciation of Rupee against the US dollar could prove to be a double whammy for the Small investors and the Non-Resident Indians (NRIs).                                                                                                                                                          Government measures like scrapping of withholding tax on masala bonds, relaxation in overseas debt regime to name a few has failed to arrest the fall in the rupee. It is speculated that macroeconomic triggers and global cues will weaken the currency further.                                                                                                                                                      The government and the Reserve Bank of India (RBI), are bereft with ammunition to fortify  rupee to find its own level. Thus, volatility is expected to continue unabated with apprehensions of dipping to new lows.

The situation has arose on the account of the widening Current Account Deficit (CAD) triggered by the steep rise in crude oil price, trade war between the US and China, all external factors rather than internal, even though the Indian economy clocked a GDP growth of 8.2% in the past quarter.

New deposit scheme for foreign investors

Experts opine that the weakness in the rupee is having a bearing on the investment behaviour of the NRIs and their fund managers as their investment scopes are getting wider. They are waiting in the wings for the government to announce a new deposit scheme to increase foreign investment inflows to check the slump in rupee value.

Government is betting on a sizable flow from Foreign Portfolio Investors (FPIs), who already own securities worth $425bn in Indian equities. Out of this, NRIs have invested about $75bn through India-focused funds.

There were speculations that the FPIs would take an outward route following move on regulation for disclosure on ownership. But, Securities and Exchange Board of India (SEBI) intervened and allowed more time to arrest the exodus of capital.

P.K. Sajithkumar, Chief Executive of a Dubai-based financial service and advisory firm (IBMC), views it as an opportunity for FPIs to strengthen their portfolios, taking advantage of the Rupee rout. “FPIs who entered the market when exchange rate was hovering around Rs 67 per dollar or earlier, should remain invested. For new entrants, it will be an Golden opportunity to leverage the fall, which is expected to go deeper.”

The rupee slump against dollar has also a lot to offer for the retail investors in the Indian stock market. Mukund Cherrusserry, Director, TrendRiser Securities, was of the opinion that this is the time for cherry-picking in Indian stocks. Stock prices are expected to decline further on account of the economic woes of the country where inflation rate will spiral and interest rates will scale up with corporates facing the heat of increased cost of funds, he said.

Time for SIPs

Investment in the Indian market through systematic investment plans (SIPs) could also prove to be a masterstroke. A cash crunch is in the offing which would result in a bearish trend, offering a window to enter the market at lower levels benefiting the SIP investors.”

With the Indian economy under severe pressure on the trade and fiscal deficit fronts, the central bank will be left with no other option but to increase interest rates.

Banks would be forced to hike interest on NRE (non-resident external) and FCNR (foreign currency non repatriable) deposit rates. Returns from NRE and FCNR deposits are fully repatriable and FCNR account allows the depositor to keep his money in foreign currency itself, saving on the exchange cost.

The Indian Real Estate has another opportunity to cash in on the account of Rupee slide. The realty market outlook is rosy in view of the decline in property prices following the recent policy changes, implementation of GST (Goods and Services tax) and Demonetization. Prices are at attractive levels in most cities across the country and there has been resurgence in sentiment.