The Indian rupee has depreciated close to 10% in the last one month or so vis-a-vis the US dollar. It fell to almost 50 against a dollar on 23 September from the level of 44.4 in July-end and is now around 49. According to rating agency Crisil Ltd, the main reason for such a sharp fall is rising demand for the US dollar by Indian companies amid poor foreign institutional investor participation. In other words, the demand for dollar is higher than its supply, resulting in depreciation of the Indian currency.
Besides affecting the macroeconomic situation, the depreciating rupee would also have a bearing on your personal finances. A lower value of rupee compared with the dollar may make certain things costlier for you and others cheaper.
Illustrations by Shyamal Banerjee/Mint
Where you may lose
Foreign investment: Any investment abroad, whether in stocks or real estate, would become dearer for you. For instance, to buy stocks worth a dollar, you would be required to pay around Rs 50 at present compared with Rs 45 about a month ago.
However, since different countries have different currencies, the actual impact would depend upon the fluctuations of currency of a country in which you are investing. Normally, the rupee is first converted into dollars, which in turn is converted into the currency of the third country. Hence, the actual impact would vary according to the level of depreciation in rupee vis-a-vis the third currency. So if rupee depreciates, while the third currency remains at the earlier level compared with the dollar, you would spend more money for the same amount of investment in the third currency.
Foreign education (for aspiring students): Students who plan for next year admissions will end up paying more for the forms of exams such as Test of English as a Foreign Language (TOEFL), Graduate Record Exam (GRE) and Graduate Management Admission Test (GMAT). These are entrance exams that students take to prove their eligibility for studying abroad in terms of basic language, skills and IQ.
Moreover, the application forms of foreign universities, which cost $50-1,000, will be more expensive for Indian students.
Those who opt for the instalment method of payment, may either enjoy the benefits or face the brunt of the conversion rate. Says Arjun Sethi, a student from New Delhi who had taken GRE and TOEFL, “I have an offer letter from a university in the US but if the rupee stays weak, then the cost of the course will go up for me. Even if the difference is Rs 4-5, I have no option but to shell out more than estimated.”
Foreign education (for existing students): “The overall budget will be affected as every item in the budget list will witness a change, as apart from the application fee, examination fee and the tuition fee, even the cost of living will be higher for the students,” says Honey Bhatia, area head, Foster Education Consultants Pvt. Ltd, Gurgaon-based foreign education consultancy.
“This will have an impact on students who have delayed paying their fees to the universities for the July-September 2011 batch. Students may now have to pay Rs 50,000-1 lakh over the fee which they were to pay earlier this year,” says Naveen Chopra, chairman, The Chopras, an education consultancy.
Students who are on an education loan may also face problems. “Paying fees in instalments will add to the problem if the loan sanctioned is less. In that case, students will have to take out the remaining money from their pocket,” adds Chopra.
Foreign travel: If you are planning to go abroad this holiday season, the depreciating rupee is sure to burn a hole in your pocket. Add to that, the recent hike in fuel prices, which has pushed up airfare. For instance, when rupee was at 45 compared with the dollar, you paid Rs 90 for a service that cost $2. Now, assuming the rupee is at 50, you need to shell out Rs 100 for the same service.
“The cost of travel could go up by at least 10-15% due to the falling rupee. The budget conscious traveller will be the one who will be the most hit and this may lead to a shorter holiday overseas,” says Manoj Gursahani, chairman, TravelMartIndia.com.
Travel companies are claiming that they are not passing the extra cost to the customers. “At the moment we are not passing the effect to the customer. The impact is minimal as the movement in the next two months is mainly happening to Far East where the total land cost (hotels, sightseeing, tour guides, food) is only 30-40% of the total cost,” says Sabina Chopra, co-founder and executive vice-president (operations) of online travel portal Yatra.com.
However, if the rupee continues to depreciate in the coming months, some companies plan to change their price models. “Most of our pricing are all inclusive. As of now we haven’t really passed this effect to the customers. As a part of change, we would like to change the all-inclusive price model and ask customers to pay in foreign currency for the services which are rendered on tour abroad,” adds Chopra.
If you had made your bookings in advance, you may not feel the pinch. “If a customer has booked and paid for the holiday then the cost is frozen and the customer need not pay additional funds. However, the customer would feel marginally affected when they want to avail foreign exchange for their personal use overseas,” says Ravi Menon, head (foreign exchange), Cox and Kings Ltd, a travel company.
Where you may gain
Remittance to India: If you are dependant for funds on your son, daughter or relatives settled abroad, you would get more money for the same amount of dollars. “Rupee depreciation would have no bearing on the level of remittances but those receiving remittances would benefit as upon conversion to Indian currency the amount would be higher,” says D. Joshi, chief economist, Crisil Ltd.
Redemption of foreign investments: While investing abroad has become costlier, you stand to gain (compared with about a month ago) if you redeem some of your investments in foreign instruments. For instance, a person redeeming investments worth $1,000 would have received around Rs 45,000 in July this year, the same investment would now give Rs 50,000.
When it is a mixed bag
For equity investors, the rupee depreciation would have a twin impact. “Some sectors that are primarily export oriented stand to gain from rupee depreciation while sectors dependent on import may be affected adversely,” says Shanu Goel, senior research analyst, Bonanza Portfolio Ltd.
In fact, investors with exposure to export-oriented sectors, including information technology and textile, have benefited in the last one month. Out of the 13 sector indices of Bombay Stock Exchange, only two indices—BSE IT and BSE TecK—have yielded positive returns in the last one month. However, rupee depreciation may not be the only factor to add to their returns.
In sharp contrast, rupee depreciation adversely impacts sectors that are dependant on imports. These include metals, capital goods and power. Interestingly, all these sectors have turned out to be worst performers in the last one month, among the 13 sectoral indices. Here again, other factors may have had a bearing on their performance.
What you should do
You need to stick to your budget as far as possible and need to curtail unnecessary expenditure. “While on a foreign trip, you may curtail on shopping to stick to your original budget. If possible, one can even cancel the trip,” says Surya Bhatia, certified financial planner and principal consultant, Asset Managers, a financial planning firm.
In case of foreign education and other such mandatory expenses, you would have no option. Says Bhatia, “At the time of planning foreign education, one should consider the possible fluctuation of currency in the future to avoid unplanned burden.”
As far as equity investment is concerned, invest only if your time horizon is long enough to overlook periodic fluctuations.