Bangalore: The rupee, which hit a near decade high against the dollar earlier this year, is expected to extend its rise and pressure export firms that bill in dollars, Credit Suisse said Monday.
In an advance not foreseen by either economists or companies, the rupee had risen 8.5% against the greenback in the year to date by Friday, making it the fourth-biggest currency gainer of 2007, the investment bank said in a research note to clients.
“The rupee appreciation is sharp and here to stay,” it said. “The impact is material for many and can no longer be ignored as cyclical.”
The report said it could appreciate “by a further one to two percent in the following months.”
Software and service exporters such as Tata Consultancy, Infosys and Wipro — India’s three biggest information-technology companies — face profit pressure because most of their earnings are denominated in dollars, the bank said.
Drugmakers like Dr. Reddy’s, Cipla and Lupin could also have profit dented because of weak pricing power on exported products. Hotels and transportation companies too have adverse exposure, the bank said.
Net foreign-exchange earnings make up 51% of sales at Tata Consultancy, 56% at Infosys and 35% at Wipro. They compose 33% of sales at Dr. Reddy’s, 31% at Cipla and 20% at Lupin, the bank noted.
Commodities, media, construction engineering may be among the beneficiaries of a stronger rupee, the Credit-Suisse report said.
“In a way, the rupee appreciation has significantly reduced the defensive appeal” of the information technology and drug industries, said Credit Suisse.
The rupee ended last week just above the 41 to the dollar level.
The currency’s rise briefly propelled India to a trillion dollar economy in April when it breached the 41 level, its advance helped by inflows from investors eager to pump money into an economy expanding nine percent a year.
Foreign direct investment nearly tripled in the past financial year to $16 billion from $5.5 billion a year earlier.
Until recently, the central bank had sold rupees to make sure the Indian currency does not rise too quickly.
But the Reserve Bank of India (RBI) has eased off from selling rupees as it seeks to wrestle down inflation in an economy growing by around nine percent a year.
Letting the rupee rise has made imports less expensive, cushioning the impact of strong fuel prices for India, which relies heavily on imported oil which is priced in dollars.
By not selling rupees to buy dollars, the central bank also has not added to money supply that has been helping fuelling an inflation rate hovering around six percent, more than the central bank’s medium-term goal of 4.5%.