The decline of the Indian rupee has been one of the most talked-about topics in recent times.
The reason for this is that the Indian rupee is one of the most valuable currencies in the world and has had a steady rise in the past. However, the decline of the Indian rupee against the US dollar has created a panic in the investor community.
Advances in the dollar overseas, along with foreign fund outflows, dragged the rupee lower. The depreciation is creating uncertainty among investors, who are worried about their investments and are looking for ways to protect them from further damage.
The Indian government has taken steps to curb the decline, but none of these measures has helped so far, and the rupee continues to depreciate. There is no way to tell when this trend will end, but it could take years before things return to normalcy again.
Suppose you are an investor who has invested in stocks or mutual funds in India. In that case, you should keep track of how your investment portfolio is performing against other currencies like the US dollar or Euro, etc.
Suppose your returns have been low due to depreciation. In that case, you may want to consider switching some of your holdings into other currencies that have shown better performance compared with others, such as Gold or Silver Bullion which tends not to lose value over time like paper assets do when they get devalued due to inflationary pressures on currency exchange rates.
The value of Rupee is falling due to several reasons.
The first is that India’s economy is not performing as well as other countries, so investors are moving their money to those countries instead. India is also having trouble with inflation, which makes it hard for the government to control its currency.
India’s central bank has raised interest rates to try and keep the rupee stable—but this has made it harder for citizens to afford loans, which means that they have less disposable income overall.
The reasons for this sharp decline in Rupee value are many and varied, but here’s a brief into a few:
1) The reasons behind India’s currency crisis are multifaceted, but the main cause is India’s growing current account deficit. The current account deficit measures how much of the country’s income is spent on importing goods and services from abroad rather than earning money from exports.
In recent years, India has imported more than it exported—resulting in a large current account deficit that has put pressure on the rupee.
2) Another reason for the currency crisis is a global economic slowdown that has weakened demand for Indian exports and increased competition from other countries that manufacture similar products at lower costs than India does.
3) Inflation is on the rise in India, which means that the purchasing power of the rupee is lessening. This means that people have to spend more of their money on the same amount of goods and services than they did before.
This is reflected in a lower currency value—a lower currency value means people will be able to buy less with it than before.
4) India’s economy is slowing down overall, which means that demand for products and services has declined in recent years, which means fewer jobs are being created in India than there were previously (fewer jobs mean less money in circulation), which means more people are out of work or underemployed than before, which means fewer people have money to spend on goods and services like food, clothing, shelter—and therefore fewer people are buying those things with their own money (you can’t buy anything if you don’t have any money).
5) Foreign investment in India has decreased over time because investors no longer believe that investing in Indian stocks will give them a good return on investment (ROI).
A depreciating rupee means that the value of your currency is decreasing, which means that the value of your investments in other currencies will also decrease.
When this happens, it can mean that you have to pay more dollars or euros for an investment that was previously worth less than the dollar amount you invested.
If this happens, it can make it difficult for you to recoup losses from exchange rate fluctuations because you’ll have to come up with more money than before to get back what you lost from currency fluctuations.
The declining value of rupee has a direct impact on your investments, and it can have a significant effect on your savings and investments.
There are several ways in which depreciation has an impact on your investments:
Suppose you have invested in foreign assets like stocks or bonds. In that case, the decline of the rupee may not affect your investments much because these assets are denominated in USD or other fiat currencies and therefore do not get affected by changes in exchange rates. However, if you have invested in domestic assets like real estate or gold, then there could be some losses due to this change in the exchange rate as well since these assets are denominated in rupees only and hence get affected by changes in exchange rates as well.
Debt instruments such as bonds and debentures are issued in dollars, but they have to be bought by investors in rupees.
Many people invest in these instruments as they offer high returns on investment. However, with the fall in the value of the rupee, these instruments will become more expensive for investors – making them less attractive as an investment option.
Mutual funds invest your money across different sectors, such as stocks and bonds. However, suppose you invest in mutual funds, which invest primarily in debt instruments or other financial products denominated in dollars.
In that case, there is every chance that your savings will not grow much over time due to the depreciation of the rupee against the dollar.
If you have borrowed money from banks or financial institutions such as insurance companies etc., then there could be an increase in interest payments because these institutions charge interest based on the amount owed.
The decline of the rupee value at the same time has also been a boon for investors who want to invest in real estate, stocks, and mutual funds.
Here are some of the benefits of depreciating the rupee on investments:
The depreciation of the rupee has led to an increase in foreign investment in India. This is because when you invest money abroad, it automatically becomes more expensive in terms of Indian currency (due to depreciation).
This means that if you have invested 100 million dollars abroad, it would cost you more than before due to the depreciation of the rupee. Thus, it makes sense for investors to invest abroad because they won’t lose as much money when their assets are converted back into Indian currency again.
Similarly, if you have any earnings from abroad (say from your business), then these earnings will also become cheaper when converted back into Indian currency again due to the depreciation of the rupee!
This means that even if you’re earning money overseas and then sending it back home for personal use or investment purposes, then this amount will automatically decrease due.
The rupee’s value is trending downward, so your investment will increase in value over time as its purchasing power increases.
If you have already invested in something that has appreciated significantly—such as real estate—you can sell it for a profit and reinvest that money into other assets with a lower initial cost but similar growth potential, thereby increasing your portfolio’s overall value.
If you’re planning on selling your home or other property soon anyway (for example, to move abroad), then a weak rupee could help you recoup some of your losses by allowing you to sell at a higher price than expected.
As long as you’re willing to wait until the currency recovers its strength again, investing now will be well worth it because it will pay off handsomely later on down the road when prices start going up again because they’ll be lower than they would have been otherwise.
With the rupee depreciating against the dollar, investors are worried about their investments.
While there is no denying that this has affected the stock market and stocks in general, there are ways to protect your investments against such fluctuations.
You can invest in mutual funds to get a better return on your money. A mutual fund is a collection of stocks or bonds that can be bought by small investors as well as large ones.
These funds are managed by professionals who invest in different types of assets like stocks, bonds, or real estate. Mutual funds offer a variety of benefits, such as diversification and liquidity, which makes them an attractive option for investors looking to make better returns on their investments.
The rupee may weaken further if the sentiment toward the equity market does not improve. When compared over a period, a weakening rupee can make your household expenditure, foreign travel, and education more expensive.
Your long-term investment portfolio is not likely to be impacted by rupee depreciation. However, investment in foreign funds could benefit, provided the foreign stocks in the funds perform well too.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.