In relation to the US dollar, the rupee has decreased in value by over 7% so far this year.
In the over-the-counter and futures markets, it even surpassed the psychologically crucial 80 level last week and reached a low of Rs 79.96 to the US dollar. In the third quarter of this year, Nomura predicted that the INR would fall to Rs 82.
In general, net exporters will benefit because they will receive more rupees in return for their dollars, while net importers will suffer since purchasing dollars for imports will cost them more money. Borrowing money overseas will become more expensive as the rupee falls in value. ET investigates the industries that have been struck the hardest.
IT companies stand to profit the most because the bulk of their customers pay in US dollars. The Americas, including the United States, provide between 50 and 60% of the total. When the value of the rupee rises, so do their profits. A 100-bps decline in the value of the rupee relative to the dollar leads to a 115-bps increase in the average operating margin for IT businesses. Some of the benefits are offset by additional financial concerns.
Even though it imports a lot of raw materials, the industry is a net gainer since it exports a lot. India exported goods worth $24.62 million in FY22, with the US receiving nearly 30% of that total. Imports of raw materials totaled $4–5 billion. The INR’s decline against the USD will benefit US exporters the most, increasing EBITDA margins by 0.1-0.15 percent. API players and domestic-focused formulations might see cost increases.
Due to considerable exports and the fact that the bulk of input expenses are purchased locally, profit increases by 0.25 to 0.5 percent for every one percent decrease in the value of the Indian Rupee. A fall in the value of the rupee may increase export competition.
India exports roughly 230 million kg of tea annually, or about 16 percent of its total output, to countries including Russia, Iran, the US, the UK, Germany, Japan, Poland, and the CIS. In the current fiscal year, profits are expected to rise by 5–10%. This boosts Indian tea’s competitiveness internationally and promotes larger exports.
Oil & Gas
The industry that has suffered the most since India imports more than 85% of the oil and 50% of the gas it uses has been Purchase costs for crude importers (Indian Oil NSE 0.64%, BPCL NSE 0.18%, HPCL NSE 0.25%, RIL NSE 0.05%, Nayara) and gas importers (GAIL NSE 2.14 percent, GSPC) would rise. If pass-through is prohibited, there will be a margin loss. Higher rupee realization will benefit local producers like ONGC NSE 2.53%, Oil India, Vedanta NSE 3.09%, RIL, and fuel exporters like RIL and Nayara.
For solar power projects in India, imports are mostly required for solar cells and modules. Future bids would include greater project costs and tariffs. Margin compression for upcoming projects A 2 paisa/unit tariff increase results from every Re 1 drop in relation to the dollar.
Between 10 and 15 percent of India’s steel output is exported. The global increase in the competitiveness of Indian steel balances the effects of the latest steel export duty. The full 15% levy will be waived if the INR falls below 85 against the USD.
Despite the fact that firms export autos, 10 to 20% of the entire raw material value of a car is imported. It raises the overall cost of automobiles. The quantity of exported and imported commodities will determine the precise impact.
Imports make up about half of the cost of inputs and include important raw commodities like crude and derivatives of palm oil. To counteract increasing input costs, businesses have raised their prices. Given that a complete pass-through has not occurred, margins might be compromised. Companies must increase prices by an additional 15% merely to maintain gross margins.
Input costs, including component costs, are imported; in cellphones, this percentage rises to 70–80%. When the rupee was last benchmarked against the dollar, it was about 75. Recent decreases in component prices have fully compensated for the recent decline in performance. Companies are unlikely to lower their prices after two years since they want to increase their margins. Demand has fallen by 30–35 percent in each of the last two quarters.
Spare parts, maintenance, aircraft delivery fees, ex-pat wages, and fuel surcharges for overseas flights account for around 60% of total expenditures. An increase in costs at a time when fuel prices are at all-time highs will affect airline profitability and will increase the cost of international airfare.
Imports of network equipment cost telecommunications companies around $6 billion each year. The cost of importing equipment increased as a result of the decreasing rupee. A weaker currency may cause capital costs to climb by 5% in FY23. Carriers’ ability to stay profitable would suffer if their fees were not increased to meet growing interest costs on dollar debt.
Energy and logistics account for 50–60% of overall expenditures. When the value of the currency declines, both of these costs rise, restricting cement manufacturers’ profit margins. When input prices rise owing to rising energy and transportation expenses during the lean season, it is difficult to pass on higher costs to clients.
edited and proofread by nikita sharma