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We Appreciate Depreciating Rupee

The falling rupee might not be good for the economy, but for the export-oriented sectors it spells good news

There are two sides to a coin, and mind you, the coin knows it too! Life has come full circle for not only the Information & Technologies companies, but perhaps for all companies that derive a significant portion of their revenue from overseas markets. The once jettisoned Pharma and IT companies have won back the favour of fund managers. The reason: the Indian rupee tracing its nether origins.

Let's try to decipher the reason behind the INR's abrupt U-turn, which happened early this year. In 2008, the Indian rupee transformed to be the worst performing Asian currency after being the best performer in 2007. As on June 19, 2008, the INR had depreciated as much as eight per cent year-to-date against the US Dollar, as against the full year appreciation of 12.5 per cent in 2007.

The most conspicuous source of the INR weakness this year has been the capital outflows. For the first time since 1998, net investments by FIIs turned negative. In the first five months of 2008, net investments fell by Rs 118 billion after having doubled to $809 billion in 2007 from an average Rs. 414 billion in the previous three years. This makes it clear that the Indian currency is quite vulnerable to our weak stock markets. If the Sensex were to register another fall from here, the rupee would possibly drift downwards further.

Well, the depreciating rupee might be bad news for most of us, it has turned out to be good news for the pharma and IT companies. With the rupee returning back to the early 2007 lows, fund managers are of the opinion that export-oriented sectors like pharma and IT might just save the day for them.

Infosys Technologies and Tata Consultancy Services topped the list of most bought stocks by fund houses in the month of May. Fund houses bought 23.59 lakh shares worth Rs 753 crore of Infosys and 31.36 lakh shares of TCS aggregating Rs 443.47 crore. At the end of May, 2008, Infosys featured in the portfolio of 149 schemes as compared to 120 at the end of March. On the other hand, 102 AMCs had TCS in their schemes' portfolios as against just 83 two months back.

Fund managers found some positivity in the near term in pharmaceutical companies as well and took heavy doses of companies like Ranbaxy, Dr. Reddy's and Lupin. Fund managers collectively bought 2.7 million shares of these companies amounting Rs 38 crore in the month of May. Total fund count for Lupin increased from 33 in March to 38 in May. The fund count increased from 54 to 58 for Ranbaxy and from 37 to 39 for Dr. Reddy's for the above mentioned period.

Moving ahead, as the global financial mess shows no signs of easing off, capital flows to Indian will also stay at bay, which that the export-oriented sectors will continue to have a good time.

Most Bought Stocks (May 2008)
Stocks   Value (in cr.)   Shares (in lakhs)
Infosys Technologies 753.00 23.59
Tata Consultancy Services 443.47 31.36
Bharti Airtel 350.02 47.51
Tata Steel 252.37 2.60
Lupin 159.39 8.35
Idea Cellular 139.34 119.29
Tata Chemicals 130.98 7.68
Dr. Reddy's Laboratories 110.25 4.00
Ranbaxy Laboratories 108.16 15.15
Zee News 104.94 219.34