Our partners, like you are in the pursuit of knowledge. Despite not being an educational website, we have had several requests with regards to explaining some of our pieces on finance, geopolitics and other subjects. Today we will talk about the growth economy, India, in a short piece.
Think about the horrible year that emerging markets` currencies have suffered. The Indian rupee is clearly one of them, as it is now trading Rs72 versus the US dollar. It stands to reason that as the currency weakens, it takes more Rupees to buy 1 Dollar. For example, flying to India and buying 50 Rupee for 1 Dollar is not near as good for the US holder as being able to purchase 100 Rupee for that same 1 US Dollar, you can do more shopping.
But think about it from the point of view of a blue chip company in India – what is the impact if one is exporting products made in India and selling in the US? Companies that earn a lot of their revenue in the US, see profits increase, especially those who benefit from US dollar strength. Of course, their stocks back in India rally simply because if these firm sell the same volume of products, they make more dollar (dollar strength) revenue.
So as the Indian rupee depreciated this year, positive earnings for these companies translated into a strong rally in the stock market. This was not the only factor, as there were two more – the improving domestic economy in India and the growth of corporate profits were also key factors.
The BSE Senex Index is up 12 percent this year, breaking 38,000. In short, the weaker Rupee helps local companies that export, see significant revenue gain, and investors n turn buy these exporter stocks.