The rupee continues on a weak note and has slumped to an all-time low of 96.46 in trade on Tuesday, as elevated crude oil prices, global uncertainty, and a stronger dollar continue to remain key risks for the domestic unit. The rupee has depreciated for the 12th straight calendar day.
"Elevated crude, a stronger dollar, rising global yields and sustained foreign outflows are pressing on the same point: India's import bill and balance of payments comfort. The RBI can smooth the fall, but it is unlikely to spend reserves defending one level," says Harshal Dasani, Business Head, INVAsset PMS.
The rupee has depreciated 7% so far, this year. At the interbank foreign exchange market, the rupee opened at 96.37, then fell further to 96.46 against the US dollar, registering a fall of 9 paise from its open.
As the rupee depreciates to a new low, IT stocks find themselves as beneficiaries. The sector sawa strong rally of up to 4.14% in early trade on Tuesday, and is now trading higher by 3.39%.
Dasani adds that, "For equities, the first-order impact is margin pressure in oil-linked, import-heavy and foreign-debt-heavy businesses. The second-order impact is more important: a weaker rupee keeps inflation risk alive and reduces the room for aggressive rate cuts. Exporters may get some translation benefit, but the broader market usually does not celebrate currency weakness when it is driven by oil and capital outflows."
Meanwhile, within days of levying high customs duties on precious metals, the government on Saturday imposed import curbs on silver by putting the metal under a licensed regime for inbound shipments. The government, on May 13, hiked import duty on precious metals - gold, and silver - from 6% to 15%. The effective duty (including 3% IGST) is over 18%.
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