rupee depreciation and its impact on indian industries- using authenticated source
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GRG SCHOOL OF MANAGEMENT STUDIES
RUPEE DEPRECIATION AND ITS IMPACT ON INDIAN
INDUSTRIES
PRESENTED BY• NAETHRA GOWRI T• SHOBANA R• JEGADEESHWARI R• SINDHU G
SYNOPSISCurrency depreciation
Effects of rupee depreciation
Causes of rupee depreciation on Indian economy
Impact of rupee depreciation on the Indian industries
IT sector
Pharmaceutical sector
Energy sector
Conclusion
CURRENCY DEPRECIATION
Currency depreciation is the loss of value of a
country's currency with respect to another country’s
currency.
Let us assume 1$ = 1 Rupee
Americans own $100 and the Indians own Rs.100
If India buys or imports Rs. 5 worth of product from
USA then India would have Rs. 95 and USA would
have $105
USA is 10.52% wealthier now
$ 1 = Rs. 1.10
AVERAGE ANNUAL EXCHANGE RATE FOR RUPEE AGAINST DOLLAR
HISTORICAL INDIAN RUPEE RATE (IND USD)Year INR/USD
Year INR/USD
Year INR/USD
Year INR/USD
1973 7.66 1984 11.36 1995 32.43 2006 45.171974 8.03 1985 12.34 1996 35.52 2007 41.201975 8.41 1986 12.60 1997 36.36 2008 43.411976 8.97 1987 12.95 1998 41.33 2009 48.321977 8.77 1988 13.91 1999 43.12 2010 45.651978 8.20 1989 16.21 2000 45.12 2011 46.611979 8.16 1990 17.50 2001 47.23 2012 53.341980 8.89 1991 22.72 2002 48.62 2013 58.241981 8.68 1992 28.14 2003 46.60 1982 9.48 1993 31.26 2004 45.28 1983 10.11 1994 31.39 2005 44.01 http://www.rbi.org.in/scripts/ReferenceRateArchive.aspx
Effect on
If Rupee DEPRECIATES US$-INR moves
from Rs. 60/- to Rs. 65/
If Rupee APPRECIATES US$-INR moves
from Rs. 60/- to Rs. 57/-
Importers
IMPORTS BECOME COSTLIER
for each USD importer have to pay Rs 5/- more
IMPORTS BECOME CHEAPER
for each USD importer have to pay
Rs. 3 less
Exporters
EXPORTERS EARN MORE REVENUE
For each Dollar, the exporter will get Rs. 5
more
EXPORTERS EARN LESS
For each dollar, now the exporter will get
Rs. 3 less.
CAUSES FOR RUPEE DEPRECIATION Widening current account deficit
Low forex reserves: Enough to cover imports of only seven
months.
Growth slowdown: India's GDP growth fell to a decade low of
4.7% in 12-13.
Fiscal deficit: (government expenditure >tax revenue)
Dependence on foreign money - Withdrawal of money by
overseas investors is leading to the weakness in the rupee.
Recovery in the US: The slow but steady recovery in the US is
making USD stronger against other currencies.
Stimulus withdrawal: Indications that the US may withdraw or
ease the fiscal stimulus package could potentially put the brakes
on funds for developing economies.
http://profit.ndtv.com/news/cheat-sheet/article-10-reasons-why-the-rupee-is-sinking-every-day-326160
IMPACT OF RUPEE DEPRECIAITON ON INDIAN INDUSTRIES
Information industry
Pharmaceutical sector
Energy sector
IT INDUSTRYThe IT industry contributes 7.5% to India's GDP in 2012.
The industry has been growing at compounded annual growth rate (CAGR)
of 17 per cent during 2007-12.
The industry has provided direct employment to 2.8 million people and
indirect employment to 8.9 million people.
The aggregate revenue of the industry is US$100 billion in 2012, where
export and domestic revenue stood at US$69.1 billion andUS$31.7 billion
respectively.
The industry’s share of total Indian exports is about 25 per cent in FY2012
North America is the key market for exports of computer software and
services; 58.8 per cent of India’s exports were to North America in 2011-12
http://www.nasscom.in/indian-itbpo-industry
CNX IT INDEXThe CNX IT Index represents about 13.69 % of the free float
market capitalization of the stocks listed on NSE and 97.13
% of the free float market capitalization of the stocks forming
part of the IT sector as on December 31, 2013.
The total traded value for the last six months ending
December 2013 of all index constituents is approximately
10.34% of the traded value of all stocks on the NSE and
92.84% of the traded value of the stocks forming part of the
IT sector.
http://www.nseindia.com/products/content/equities/indices/sect
oral_indices.htm
CNX IT INDEXCMC Ltd. NIIT Technologies Ltd.
CORE Education & Technologies Ltd. Oracle Financial Services Software Ltd.
Financial Technologies (India) Ltd. Persistent Systems Ltd.
HCL Technologies Ltd. Polaris Financial Technology Ltd.
Hexaware Technologies Ltd. Rolta India Ltd.
Info Edge (India) Ltd. Tata Consultancy Services Ltd.
Infosys Ltd. Tech Mahindra Ltd.
KPIT Technologies Ltd. Vakrangee Ltd.
MindTree Ltd. Wipro Ltd.
MphasiS Ltd. eClerx Services Ltd.
http://www.nseindia.com/products/content/equities/indices/sectoral_indices.htm
TREND OF CNX IT INDEX AND VALUE OF INR AGAINST USD
02/Ja
n/12
10/F
eb/1
2
20/M
ar/1
2
28/A
pr/1
2
06/Ju
n/12
15/Ju
l/12
23/A
ug/1
2
01/O
ct/1
2
09/N
ov/1
2
18/D
ec/1
2
26/Ja
n/13
06/M
ar/1
3
14/A
pr/1
3
23/M
ay/1
3
01/Ju
l/13
09/A
ug/1
3
17/S
ep/1
3
26/O
ct/1
3
04/D
ec/1
3
12/Ja
n/14
5000
6000
7000
8000
9000
10000
11000
45
50
55
60
65
70
75
CNX IT Index Indian Rupee
http://www.nseindia.com/products/content/equities/indices/historical_index_data.htm
CNX return 28.59%IT return 65.33%Rupee-USD -16.29%
Jan/
12
Apr/1
2
Jul/1
2
Oct
/12
Jan/
13
Apr/1
3
Jul/1
3
Oct
/13
Jan/
14400
800
1200
1600
HCL
Jan/
12
May
/12
Sep/
12
Jan/
13
May
/13
Sep/
13
Jan/
142100
2600
3100
3600
Infosys
Jan/
12
May
/12
Sep/
12
Jan/
13
May
/13
Sep/
13
Jan/
141000
1500
2000
2500
TCS 97.90%
Jan/
12
Apr/1
2
Jul/1
2
Oct
/12
Jan/
13
Apr/1
3
Jul/1
3
Oct
/13
Jan/
14300
400
500
600
Wipro
38.93%
234.10%
34.78%
http://www.moneycontrol.com/stocks/hist_stock_result.php?ex=N&sc_id=TCS&mycomp=Tata%20Consultancy%20Services
IMPACT OF RUPEE DEPRECIATION ON IT INDUSTRY
Depreciation of rupee’s value provide short-term benefits but in
the long- run it will affect signing of new contracts by domestic
IT firms.
when the companies bid for fresh project, they do not know at
what rate they would hedge their contract - at Rs. 60, Rs. 65 or
Rs. 70 to the US dollar.
With the problem of high volatility of the currency rate, It will
be difficult to fix the price for their new projects and convince
their customer
Additionally, the gains from the falling rupee are not likely to be
very significant as most IT companies hedge their forex
position.
Nasscom President Som Mittal told The Hindu. August
28, 2013
PHARMACEUTICAL INDUSTRY Pharmaceuticals sector is one of the key sectors where Indian
companies have created a global brand for themselves besides
software.
Pharma industry contributes 5% in 2012 and 6.2% in 2013 to GDP.
In 2012, India contributed exports worth USD 15 billion to the global
generics market and almost 40% of exports were to the US alone.
The Pharma industry has performed well on exports having been
increased from Rs 386 billion in 2008 to Rs 775 billion in 2012.
The pharmaceutical sector stands to benefit from a fall in the rupee, as
between 60 and 80 per cent of its revenues come from exports.http
://articles.economictimes.indiatimes.com/2013-02-03/news/36721424_1_indian-pharma-domestic-pharma-market-generic-market
http://www.thehindubusinessline.com/features/investment-world/as-the-rupee-sinks-the-winners-are/article4840999.ece
COMPANIES (CNX PHARMA INDEX)The CNX Pharma Index represents about 5.34% of the free float market
capitalization of the stocks listed on NSE and 80.89% of the free float
market capitalization of the stocks as on December 31, 2013.
1. Cadila Healthcare Ltd.
2. Cipla Ltd.
3. Divi's Laboratories Ltd.
4. Dr. Reddy's Laboratories Ltd.
5. GlaxoSmithKline Pharmaceuticals Ltd.
6. Glen mark Pharmaceuticals Ltd.
7. Lupin Ltd.
8. Piramal Enterprises Ltd.
9. Ranbaxy Laboratories Ltd.
10. Sun Pharmaceutical Industries Ltd.
2-Ja
n-12
9-Feb
-12
18-M
ar-1
2
25-A
pr-1
2
2-Ju
n-12
10-Ju
l-12
17-A
ug-1
2
24-S
ep-1
2
1-Nov
-12
9-Dec
-12
16-Ja
n-13
23-F
eb-1
3
2-Apr
-13
10-M
ay-1
3
17-Ju
n-13
25-Ju
l-13
1-Se
p-13
9-Oct
-13
16-N
ov-1
3
24-D
ec-1
3
31-Ja
n-14
4500
5000
5500
6000
6500
7000
7500
8000
45
50
55
60
65
70
CNX PHARMACEUTICAL INDEX
CNX Pharma Dollar rate
http://www.nseindia.com/products/content/equities/indices/historical_index_data.htm
http://www.moneycontrol.com/stocks/hist_stock_result.php?ex=N&sc_id=GI&mycomp=GlaxoSmithKline%20Pharmaceuticals
Jan-
12
Apr-1
2
Jul-1
2
Oct
-12
Jan-
13
Apr-1
3
Jul-1
3
Oct
-13
Jan-
14250
350
450
550
650
RANBAXY
Jan-
12
Apr-1
2
Jul-1
2
Oct
-12
Jan-
13
Apr-1
3
Jul-1
3
Oct
-13
Jan-
141500
1900
2300
2700
DR REDDEYS28.06% 54.43%
114.65%
Jan-
12
Apr-1
2
Jul-1
2
Oct
-12
Jan-
13
Apr-1
3
Jul-1
3
Oct
-13
Jan-
14250
350
450
550
650
SUN PHARMA
Jan-
12
Apr-1
2
Jul-1
2
Oct
-12
Jan-
13
Apr-1
3
Jul-1
3
Oct
-13
Jan-
14300
350
400
450
CIPLA 17.23%
IMPACT OF RUPEE DEPRECIATION ON PHARMA INDUSTRYThe Indian pharmaceutical industry imports more than 75 % of
raw materials for manufacturing purposes.
Rupee depreciation will increase the cost of imported raw
materials.
Small and mid-cap companies will be more affected by the
increasing cost of raw materials than the major players who have
a higher export component in their revenue.
Small and mid-cap companies, which primarily cater to the
domestic market, are hit by increasing inflation and raw material
costs.
Glenmark and Ranbaxy have a significant portion of their debt in
foreign currency. So export gains will be partially offset by debt
and interest payments.
CONTD…
Profitability of companies is also affected by loans they owe in
foreign currency. Higher Dollar conversion rate invariably
results in higher interest and loan repayments. The additional
debt burden adversely affects their profitability.
http://
timesofindia.indiatimes.com/business/india-business/Pharma-com
panies-fortunes-tied-to-GDP/articleshow/19671339.cms
ENERGY SECTOR
India has become one of the largest energy
intensive countries in the World.
In 2011-12, India was the fourth largest consumer
of Crude Oil and Natural Gas, in the world after the
United States, China, and Russia.
Energy has been universally recognized as one of
the most important inputs for economic growth
There is a strong two-way relationship between
economic development and energy consumption
CONTD..Due to India’s economic rise, the demand for energy has grown
at an average of 3.6% per annum over the past 30 years.
Petroleum demand in the transport sector is expected to grow
rapidly in the coming years with rapid expansion of vehicle
ownership.
The country relies on imports for a considerable amount of its
energy use
31% of the country's total imports are oil imports
http://mospi.nic.in/mospi_new/upload/Energy_Statistics_2013.pdf
?status=1&menu_id=216
http://www.indiaenergyportal.org/overview_detail.php
IMPORTS
http://mospi.nic.in/mospi_new/upload/Energy_Statistics_2013.pdf?status=1&menu_id=216
http://www.eia.gov/countries/analysisbriefs/India/images/crude_oil_imports.png
COMPANIES (NSE CNX ENERGY INDEX)
1. Bharat Petroleum Corporation Ltd.
2. Cairn India Ltd.
3. GAIL (India) Ltd.
4. Indian Oil Corporation Ltd.
5. NTPC Ltd.
6. Oil & Natural Gas Corporation Ltd.
7. Power Grid Corporation of India Ltd.
8. Reliance Industries Ltd.
9. Reliance Power Ltd.
10. Tata Power Co. Ltd. http://
www.nseindia.com/products/content/equities/indices/sectoral_indices.htm
TREND OF CNX ENERGY INDEX AND VALUE OF INR AGAINST USD
02/Ja
n/12
10/F
eb/1
2
20/M
ar/1
2
28/A
pr/1
2
06/Ju
n/12
15/Ju
l/12
23/A
ug/1
2
01/O
ct/1
2
09/N
ov/1
2
18/D
ec/1
2
26/Ja
n/13
06/M
ar/1
3
14/A
pr/1
3
23/M
ay/1
3
01/Ju
l/13
09/A
ug/1
3
17/S
ep/1
3
26/O
ct/1
3
04/D
ec/1
3
12/Ja
n/14
6500
7000
7500
8000
8500
9000
45
48
51
54
57
60
63
66
69
energy Dollar ratehttp://www.nseindia.com/products/content/equities/indices/historical_index_data.htm
CNX Return 28.59%Energy Return 10.58%INR - USD -16.29%
Jan/
12
Apr/1
2
Jul/1
2
Oct
/12
Jan/
13
Apr/1
3
Jul/1
3
Oct
/13
Jan/
14240260280300320340
ONGC
Jan/
12
Apr/1
2
Jul/1
2
Oct
/12
Jan/
13
Apr/1
3
Jul/1
3
Oct
/13
Jan/
14200
250
300
350
IOC 15.05
Jan/
12
Apr/1
2
Jul/1
2
Oct
/12
Jan/
13
Apr/1
3
Jul/1
3
Oct
/13
Jan/
14250
300
350
400
BPCL
Jan/
12
Apr/1
2
Jul/1
2
Oct
/12
Jan/
13
Apr/1
3
Jul/1
3
Oct
/13
Jan/
14250
300
350
GAIL
26.78
0.18
4.02
http://www.moneycontrol.com/stocks/hist_stock_result.php?ex=N&sc_id=ONG&mycomp=Oil%20and%20Natural%20Gas%20Corporation
IMPACT OF RUPEE DEPRECIATION ON ENERGY SECTOR
• A sharp decline in the value of the rupee will affect the power
generation capability of power plants that are heavily dependent
upon imported coal for electricity generation. This would mean an
increase in the level of energy deficit in the country.
• A fall witnessed in power generation capacity is likely to have an
adverse affect on all the three sectors of the economy namely
agriculture, industry and services.
• “ Rupee depreciation will have the highest impact on Indian Oil
Corporation (IOC) and Bharat Petroleum (BPCL) because 50 per
cent of their total debt are in foreign currencies in 2012-13” -
Global rating agency Fitch
NTPC Ltd and Power Grid Corp. of India Ltd had around 30% of
their FY13 (year-end March) debt in foreign currency and have not
hedged their foreign currency exposures.
Reliance Industries Ltd had a significant proportion (92%) of its
FY13 debt in foreign currency. However, RIL has a hedge, with both
its raw materials as well as final products priced in dollar.
At FY13 , RIL had also hedged its currency and interest rate
exposures through interest rate swaps (Rs.324 billion), currency
swaps (Rs. 33 billion), options (Rs.23 billion) and forward contracts
(Rs. 894 billion). The hedging covers the company’s debt, imports
and its exports. http://businesstoday.intoday.in/story/rupee-slide-to-impact-ioc-bpcl-
most-fitch/1/198204.htmlhttp://www.assocham.org/arb/general/Rupee_Exchange_Depreciatio
n_Impact_Analysis-2012.pdfhttp://petroleum.nic.in/pngstat.pdf
CONCLUSIONThe major reasons for rupee depreciation are slow economic growth rate,
weakening capital inflows and widening current account deficit
Rupee depreciation will benefit the Export oriented IT sector only in the
short –run. And moreover many Pharma companies hold loan in foreign
currencies that will increase their cost of debt
Indian Energy sector that is hugely dependent on Imports are hit very badly
by weakening of rupee against USD
To stabilize the currency exchange rate The RBI has reduced the limit
for outbound investment and remittances from India , Restricts the import
of gold and oil by increasing the import duty, have increased the limit of
FDI Investments in 12sectors and enhanced FII limits in government and
corporate bonds
http://
www.thehindu.com/business/markets/govt-rbi-taking-steps-to-stabilise-rupee
-chidambaram/article4995540.ece
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