Falling rupee: Can you gain from it?
One of the dominant themes in the Indian economic background this year has been falling rupee. The rupee has lost almost 10% against the dollar from the start of the year and dropped to its lowest on July 2 and touched 69.10 per dollar. What prompted such a fall is huge selling by foreign portfolio investors (FPIs) in the domestic equity and bond markets. The FPIs have pulled out a cumulative USD 9.4 billion from equity and bond markets since January this year.
The fall in the value of the rupee, in general, impacts the equity markets adversely and, thereby, the equity-dedicated mutual funds. Nevertheless, there are pockets of opportunities that will help mutual fund investors to gain even in the scenario of a falling rupee. First is investing in those themes that benefit from a falling rupee. Such themes are IT and pharmaceuticals that derive most of the revenue in rupee terms. Hence, the falling rupee will help them to post better returns. In the last one month, the IT and pharma sector funds have given an average return of 4.6% and 2.27%, respectively. During the same period, other equity categories generated negative returns.
In addition to the above, the other category of funds that are likely to benefit from depreciating rupee is international mutual funds. Nevertheless, before taking a plunge into these funds, you should understand some nuances. International funds can be categorised into different themes such as commodities, real estate stocks, US-based equities, Europe-based equities, energy stocks, etc. The falling rupee will lift the performance of those funds that are dedicated to the US-based equities. The reason being, although the NAV of the fund is declared in rupee terms, the assets are valued in USD, hence any rise in the value of the USD compared to rupee will improve the fund’s performance.
But those who are not comfortable with international or sector funds can look at balanced advantage funds. These are allweather funds that will help you to ride through the market volatility. Our cover story in this issue dwells in detail on this category of funds and their suitability
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Very nice description and analysis on closed-ended funds and ETFs. I have been investing in the small-cap and mid-cap schemes for the last couple of years and currently, these funds have lost value like anything. So should I exit from them, if yes what are the other options? Kindly provide your guidance.
- Sanjay Thengadi
Editor Responds:
Thank you for appreciating our stories. In this issue, we have covered themes like small-cap, mid-cap funds and how they are going to perform, going ahead. Our article will guide you in taking an appropriate decision about your investments.