Which Industries Stand To Gain, Which Tend To Lose?

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Though the rupee is witnessing a continuous fall against the dollar impacting domestic inflation and investments, not all sectors are witnessing the same effect on their demand and finances. There are sectors that are getting affected negatively, while other are benefitting from the rupee fall. Here’re various sectors and the impact of the rupee fall on them:

The domestic currency has declined about 8 per cent against the US dollar this calendar year so far. This is due to the continuous outflow of foreign investments, surging crude oil prices, tight monetary policy by US Federal Reserve, and general dollar strength. This was aggravated by global uncertainties arising out of a geopolitical crisis due to the Russia-Ukraine war.

The rupee was at 73.77 against a US dollar on January 12 this year, which has now declined to 79.76 against a dollar. The rupee on Thursday closed at 79.99 against the dollar, very close to the 80 mark. On Monday, it declined by 15 paise to close at 79.97 (provisional) against the US dollar.

Negatively-Impacted Sectors:

Oil And Gas: As the country imports over 80 per cent of its energy requirement, the sector has got most severely affected by the weakening of the rupee. The domestic oil marketing companies’ costs have risen due to costlier imports, their margins have also got hit.

FMCG: The fast-moving consumer goods sector has been hit hard due to the rupee fall as their input cost has increased due to costlier crude and palm oil. As per reports, the companies have not been able to fully pass on the rise in raw material and they need 15 per cent more price hike to maintain gross margins.

India is the largest importer of palm oil in the world. India imports over 13.5 million tonnes of edible oil every year, out of which, 8-8.5 million tonnes (around 63 per cent) is palm oil.

Airlines: As significant payments are made in dollars as an airline’s operating expenses, a fall in rupee adversely affects their margins and profitability.

Consumer Electronics: About half of the total input cost is imported for consumer electronic companies, with smartphone makers’ being dependent up to 80 per cent on imports. The fall in rupee has made imports costlier, thus raising their input costs. The consumer electronic demand in the country is down 35 per cent in the past six months.

Cement Industry: A jump in oil prices affects cement companies significantly as energy and logistics account for half of their cost.

Positively-Affected Sectors:

Information Technology: Being the export-oriented services sector, the fall in the rupee affects the country’s IT sector positively, as these companies mostly earn in dollar terms. So, a cheaper rupee will make their dollar earnings higher in India. As per an estimate, a 100-bps fall in the rupee against the dollar translates into a 30-bps operating margin benefit.

Pharma: Though the sector imports raw material in a significant amount, its exports get more benefit of a fall in rupee than its imports getting affected. India exported about $24.62 worth of pharma products in the financial year 2021-22 and about 30 per cent was sent to the US. Raw material imports stood at $4-5 billion. The rupee fall will add 0.1-0.15 per cent to its Ebitda margins.

Tea: As the rupee falls, India’s exports become more competitive and raises demand as they become cheaper for foreign buyers. The country exports about 230 million kg of tea, or 16 per cent of what it produces, to various countries. After the rupee fall, tea companies’ profits are expected to jump up to 10 per cent in the current financial year.

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