Impact of currency fall on your investments and home budgets

The Indian rupee (INR) is in a weakening spree against the dollar for some time now. It has weakened by about 12% in 2018 and there are concerns that the Rupee can hit new lows in the coming weeks/months.

Predicting the market movement in the situation is like crystal ball gazing. History has proven time and again that equity markets will take the investors through a roller coaster ride. Right after the 1992, 2000, 2004, 2008 crises the markets bounced back each time and rewarded those investors handsomely who remained invested during the harsh periods. We are not suggesting anything radical but just reiterating the age-old proven dictum of equity investing.

Here are a few things you can keep in mind while investing in the times of a depreciating home currency:

You can look at investing in companies whose sales and earnings are from exports. The depreciating Rupee will shore up the earnings of such companies and if there are no increases in the input costs then the profit margin would put a smile on investors' face.

Consider investing in funds which are investing in the overseas market. The appreciating dollar and the growth of the US economy would bring in double benefits to the Indian investor.

Avoid companies with high exposure to foreign currency debt or high dependence on imports for raw material. Companies which have debt in foreign currency but are earning in Indian Rupees will be in trouble the most. The debt servicing burden of such companies would increase, thereby, adversely impacting their profitability and the investor in turn. Also, avoid investing in companies which reply to imported raw materials like crude oil and pharmaceuticals.

Temper down expectations of high returns from equities. This time calls on for patience and holding on to your investments and not expecting high returns

If your requirement for funds is likely to arise in the next 12-18 months, then move your investments to short-term debt funds or bank deposits.

Re-balance your portfolio to your required level of risk as per the plan.

Refrain from investing in a lump sum. Or don't put all your eggs in one basket as the cliché goes - spread your funds and hence your risk across different options.

Any correction should be viewed as an opportunity to invest.

Don't be fearful, hold on to a steady course.

Impact on Home Budgets

The falling home currency is a tough time for home budgets. It impacts the household budgets with no mercy. Higher diesel and petrol prices resulting from higher input costs for crude oil results in a negative domino effect on the average household in the form of increased costs all around. The direct effect is the increase in the cost of transportation of goods, which results in an increase in prices of day to day use of commodities. Prices and FMCG sector too shoot up as often raw materials are imported. In short-term, the effect may not be felt but if the rupee continues to fall, the costs will eventually be passed on to the customer and as a corollary, the home budgets need to be tightened.

A depreciating Rupee against the Dollar severely affects the cost of foreign education. The foreign vacation that you dreamed of taking just got that much more expensive. A falling Rupee is not likely to take you as far as you would like it to go. It is also a good idea to reconsider the purchase of any imported white goods or cars for some time to come. Re-evaluate any discretionary expenses.

The falling rupee calls for tightening of belts all round and riding the phase-out.

The writer is equity advisor, Meri Punji IMF Pvt Ltd