Rupee will spoil the joy of festivities this year
The impact of weak rupee shall be felt now on inflation. Prices would further escalate. The weakening rupee is bent on spoiling the joy of coming festivals says this write up. This would leave its trails on the cuisines to be cooked during the festivals including the electronic equipments.
Festival month is fast approaching. By that time, effect of weak rupee would be distinctly felt by people. Challenge of salvaging the The declining value of Indian Rupee is burgeoning. Prices of several items would increase. Had the session of parliament was not moving, one more installment of burden would have been dropped on the back of people by increasing the prices of diesel and petrol? Increases in both these products were done on 31 July 2013. After that, rupee has increased from 60.40 to 64.50 in term of dollar. Under the situation, the petrol price is poised for a further increase of 1.60 rupee per liter. According to sources, the burden of loss on diesel is 10 rupees per liter. Increasing its price by 2-3 rupees per liter is also under serious consideration. Let us discuss which areas shall be hit the most from the bites of the falling rupee.
Impact on Home loan- to be costlier
During this month of festivals, rupee will bite those too, who are planning to buy homes. To halt the falling rupee, RBI had to peg up the interest rates. ICICI and HDFC have already raised their base rates. Their home loans would become also costlier in the same proportions. Old loan account holders would also feel the heat as their EMI would enhance up. Around half a dozen other banks have also increased their home loan interest rates.
Impact on Auto companies
The value of rupee is directly related to the cost of cars manufactured in our country. Estimated 30 % chunks of auto spare parts are being imported still from foreign countries. Maruti, Hyundai, GM, including Ford and all others are contemplating afresh to fix their car prices. These companies have to face up to heavy slump also in the domestic market. The possibility of sale of more cars during this festive season is slight.
Impact of weak rupee on electronic equipments
Around up to 40 % raw materials are imported from abroad by the TV, washing machines, and mobile companies in our country. Dollar, Yen, Ponds and sterling have grown dearer increasing the investment cost of materials being imported. People will have to pay in excess for these equipments.
Impact of homemakers in kitchensHousewives will have to endure the most of the weakening value of rupee. Its impact would be felt on edible oil in coming days. India imports its 50 % demand from abroad. In similar fashion, milk and powder are also imported.
Companies earning profit also from the weak rupee
Cheap rupee has brought bad news for not all companies. Some companies are such which are reaping the maximum yields from the fall in rupee. Among them are the giant IT companies in addition to Pharma, auto, and FMCG companies. The sources connected with market opine that other companies benefiting from weak rupee are:
These companies appear to be in profit. The rupee becoming 65 compared to a dollar has given the maximum profits to three companies among them is TCS, earning an additional income to the tune of 5700 crores.
Problems mounting on companies under foreign debt burden
The cost of falling rupee due mainly to government's lethargic policies will have to worn by the companies, already facing slump before. During the three months just elapsed by, rupee has tumbled over 17 % in terms of dollar. Weakness in the value of rupee has affected these companies the worst. Their debt burden has multiplied manifolds. India pays the price for giving Manmohan Singh a second term. The effect is damaging particularly on those companies that have taken foreign loan to carry out their newer projects. If the fall in rupee does not halt, not only for these companies alone but for the share market also the situation would further worsen in the coming days. Whatever efforts by the government and the RBI to check the fall in rupee have been taken have beaten the market farther downhill. Experts are of the opinion that the nervousness has swept the share market for the reason of reducing the liquidity. Due to this factor, the series of interest rates going higher up has begun. It would augment slump not merely in the domestic market alone but also add up to the burden of the domestic debts of companies. To top this is the scam of 'National Stock Exchange Scam' that has complicated the matter further. Cheaper getting rupee has mauled the balance-sheets of those companies that have have borrowed from abroad. According to an estimate, around 854 companies had lifted the credit of a total of 238 billion dollar from international market by the end of 2013. The reason responsible for the thrashing of shares of these companies in the share market is this also that 45 % of their credit is for a shorter-term that has to be paid back by companies within the coming six moths. The condition of these companies has gotten thinner by the falling rupee now biting the dust on the ground. This is the worst time for the companies that have borrowed foreign loan. They will have to show the impact of the falling rupee in their next quarterly result. Hence, excess loss in their account is but obviously perceptible. However, the government has given permission to bifurcate the loss due to these fluctuations in the next two quarterlies.
Although the government is worried over the score of the 15 % fall in the value of rupee during some months past, but it feels confident that things would improve sooner. Finance minister P Chhidambaram has articulated the factors in a serial manner that has the mettle of regaining the strengths of the weakening rupee. He sounded fully confident over this matter that very soon; foreign investments are going to rain in the country that would strengthen the rupee. According to him, the results of the efforts put in to bring back the tattered state of affairs of country's economy and luring FDI would be evident in last quarterly of current fiscal year. During the resent tri-quarterly (July-September), no matter, the economic growth remains at a slower pace, but much improvements would be discernible during the coming 6 months. There is much hope of success also from the efforts being made to keep the current account deficit (CAD) limited to the level of 70 billion dollar. Good news has happened during recent times on many fronts as for instance, in the first quarterly, 9.14 billion dollar of foreign investments has already been pumped in the Indian economy, which is 70 % in excess of the first quarterly of the last year.