Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the banking sector and healthcare sector witnessing maximum selling pressure.
The BSE Sensex is trading down by 121 points (down 0.3%), while the NSE Nifty is trading down by 33 points (down 0.3%). The BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.4%.
The rupee is trading at 70.16 to the US$.
In the news from global financial markets, the US and China imposed fresh tariffs on each other's goods in the middle of trade talks.
Both the countries on Thursday imposed tariffs on imports worth some US$ 16 billion. This took the total value of goods hit as a result of trade war with China to US$ 100 billion.
With the above development, the US will collect an additional 25% in duties on Chinese imports ranging from motorcycles to steam turbines and railway cars.
Chinese retaliation, on the other hand, will see a similarly sized tax on items including coal, medical instruments, waste products, cars and buses.
Policy makers across the world are warning of the above trade war that could undermine the broadest global recovery in years. Meanwhile, business groups representing companies ranging from Walmart Inc. to Amazon.com Inc. are warning US tariffs could raise prices for consumers and sideswipe stock prices.
How exactly this trade war will unfold is something to watch out for. We'll keep you updated on all the developments from this space.
In the news from currency markets, the Indian rupee is witnessing selling pressure today.
The currency weakened by 13 paise to 70.24 against the US dollar in opening trade session today. Losses were seen as the US-China trade talks ended with little progress.
Yesterday too, the domestic currency lost 30 paise to end at 70.11 due to renewed worries about a hike in US interest rates.
Note that the rupee has been witnessing selling pressure against the US dollar since the start of this calendar year.
What does the fall in rupee mean for the Indian economy?
A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.
Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.
On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.
Further, companies who import most of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.
Looking at the brighter side, rupee depreciation brings a cheer on the exports front.
A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.
Apart from the above issues, the falling rupee is also posing a big risk to the unhedged foreign currency borrowings. Meaning liability on these loans could up exorbitantly because of unfavourable forex movements.
Rupee at 70 Compounded India's Bad Debt Problem
Here's what we wrote about this topic in one of the editions of The 5 Minute WrapUp...
- Even as the PSU banks struggle to recognise and provide for their bad loans, the companies they lent to, have yet another problem. The rupee's sharp depreciation is posing a big risk to the unhedged foreign currency borrowings.
Lured by low interest rates overseas, Indian companies' foreign currency borrowing was at a 5-year high in FY18. Almost two thirds of it was unhedged. And the rupee's fall has turned their loan liabilities into a huge problem.
So, if the high exchange rate is here to stay, the possibility of PSU banks recovering some of their bad loans from the troubled companies is negligible.
This article was originally published in English at www.equitymaster.com
Read the complete Indian stock market update. For the terms of use, go here.
No comments:
Post a Comment