Sensex bounces back, but rupee falls: Could this be a sign of currency appreciation?

It is imperative that investors should choose sectors with high growth potential.

Is the Indian rupee really falling?

It would be wrong to say that the Indian rupee is falling. Instead, we have to consider that the US dollar is appreciating. Almost a year back, the trading index for the US dollar was near 92.

However, today, it is trading at 105, which is a 14 per cent YoY growth. Simultaneously, over the last year, the trading value of the rupee has plunged from 73-74 to 79, a depreciation of 7 per cent on a YoY basis.

This indicates that while the US dollar has appreciated by about 14 per cent compared to other global currencies, it is up by only 7 per cent against the rupee.

As a result, the Indian rupee has outperformed other currencies in the broader international market.

Impact of rupee depreciation on the Indian economy

The Indian economy could face challenges managing its twin deficit with the ongoing rupee depreciation. As a developing nation, we have only a few options to resolve this.

Looking at the current energy landscape, the government should continue to procure oil from Russia. It will help safeguard India’s fiscal deficit.

Additionally, currency depreciation is bound to impact almost all businesses nationwide. However, some industries might also benefit from it.

The weakening of currency will potentially be an upside for the IT sector, pharmaceutical industry, and export-oriented businesses.

Future of the Indian rupee

While we have witnessed a dip in the rupee trading value, we are optimistic about its growth. From hereon, the rupee value is expected to appreciate.

However, the potential collaboration between Sweden and Finland in the upcoming NATO Summit on June 30 seems to be the only caveat.

If this alliance goes through, it will significantly impact the global economy. It will further lead to a decline in the rupee. In any other case, the Indian rupee should rise from the current level of 79.

(The author is Co-Founder, Ashika Global Family office Services)

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times.)