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

THANK YOU