The rupee has depreciated by around 9% from the beginning of this calendar year and is currently trading at 70.18 per dollar. Since around 45% of the Nifty’s earnings per share (EPS) is linked to the global economy through exports, a falling rupee has been a tailwind for the key benchmark index in the past. Typically, a 10% fall in rupee vs dollar should boost Nifty EPS by 4% and vice versa, other things remaining the same, according to an analysis by domestic brokerage firm Edelweiss Securities Ltd.

Companies in the information technology (IT) and pharmaceuticals are, of course, poised to benefit. However, the full gains of the rupee’s depreciation may not accrue to them this time. A depreciating euro against the dollar and headwinds in emerging market currencies could potentially negate some of the forex gains for IT and pharma companies, respectively, said the Edelweiss note.

Nonetheless, a strengthening rupee could provide a glimmer of hope for the continuously falling Bloomberg’s one-year forward consensus estimates for Nifty EPS (see chart).

Meanwhile, the Nifty’s long-term performance doesn’t get impacted much by the rupee’s decline on an absolute basis, but does on a relative basis to emerging market.

“Nifty has historically underperformed emerging markets in the near-term when the rupee depreciates by >5%," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

Further, it could also hamper investments by foreign investors, who have just begun to repose their faith in Indian equities, since a falling rupee would depress their returns in dollar terms. In this month so far, foreign institutional investors are net buyers of Indian equities to the tune of $160 million. However, on a year-to-date basis, they still remain net sellers.

From a macro perspective, the rupee depreciation is a problem for a net oil importer like India, especially because crude oil prices are still elevated.

As Chhaochharia pointed out, while 1% rupee depreciation would lead to a 70 basis points (bps) increase in the Nifty earnings, the recent fall in the rupee has raised concerns among investors from a macro perspective. One basis point is one-hundredth of a percentage point.

“Our view is that it may not be a big stress factor fundamentally but may hurt sentiment. According to the RBI (Reserve Bank of India), a 5% INR (Indian rupee) depreciation would push up inflation by 10-15bps; however, the impact on growth would be favourable given the boost to net exports," he added.

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In short, a depreciating rupee may be beneficial for a handful of stocks, but it doesn’t bode well for the country’s macroeconomic stability unless export growth significantly improves.