In this article, we will be discussing the trend of rupee depreciation against the US Dollar and how it will impact the various sector. So, let’s get started!
Which Sector Gets Affected Due to Currency Depreciation:
- Generally, the import-dependent sectors are the ones that got severely affected by the depreciation in the domestic currency as trade is mostly done in the US Dollar and hence it makes imports expensive.
- Export Oriented Sectors are those sectors that largely get benefited from currency depreciation for the obvious reasons that these sectors bring foreign currency into the country.
Sectors that have a Positive Impact:
1) IT Sector:
- The IT Sector generated around 80%-90% of the revenue from export i.e., services provided to software exports or foreign clients.
2) Textile Sector:
- Textile Sector is another sector that is highly export-oriented as the Indian textile companies are clothes manufacturers for many famous cloth brands.
3) Tea/Coffee Sector:
- Tea/Coffee players like Tata Coffee, Tata Consumer Products, etc. gets benefited from domestic currency depreciation as they produce tea/coffee in the domestic market and export the same to various nations.
Sectors that have Minimum Impact of Rupee Depreciation:
It includes that sector which imports some products for further exporting. These sectors are:
- In the Pharma sector, Active Pharmaceutical Ingredient (API) is generally imported from China but further, it is exported to foreign nations hence the impact of currency depreciation is somewhat neutralized as import and export, both take place in US dollars.
2) Auto Sector:
- In Auto Sector, India is dependent on foreign nations for the import of raw materials like many automotive parts, but then there is also a rise in the export figures of Indian Auto Companies.
3) Steel Sector:
- In Steel Sector, India has a higher share of imports for various products. Around 60% of imports in the steel sector is being linked with US Dollar.
- And India also exports steel to foreign countries although there are some restrictions on steel exports currently, hence there is a minimal impact of currency depreciation on the steel sector.
Sectors that have a Negative Impact:
1) Renewable/Power Sector:
- In this sector, the majority of the raw materials are being imported i.e., in the US Dollar, but since the consumption is only in the domestic market and there is no export, this sector has a huge impact on currency depreciation.
2) FMCG Sector:
- The FMCG sector is also another sector that gets highly impacted by domestic currency depreciation as this sector largely sources raw materials from foreign countries, but there is a lower share of exports.
3) Consumer Electronics Sector:
- The Consumer Electronics sector which again imports a lot of its raw materials and spare parts which accounts for around 50%-60% of the total raw material cost, and since they have lower export figures, this sector also gets impacted by domestic currency depreciation.
4) Other Sectors:
What Should Investors Do?
Import Dependent sectors that source raw materials and their products from foreign countries in US Dollar terms, but the sale of products are largely on the domestic market, then this sector gets highly impacted due to domestic currency depreciation. On the contrary, the sector which has a higher export orientation gets positively benefited from the same situation. Hence, investors should keep this factor in consideration while selecting the sector to invest in. Do follow due diligence before making an investment decision.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.