Published: 09th May 2022
#WhatTheFAQ: Indian rupee hit all-time low against the US dollar yet again. But why?
What is happening to the Indian rupee and why is it hitting new lows against the dollar? We try to decode this in today's edition of What The FAQ
Are you planning to go to the US anytime soon or planning to invest in the overseas market in dollars, then this is something that you should know about. The official currency of India, the Rupee, opened at 76.92 against the US dollar and then, plummeted 51 paise to 77.43 in the early hours of the day on Monday, May 9.
The flight-to-safety trades have pushed the dollar strength, with bids for the greenback (the US dollar) accentuated, since Russia attacked Ukraine late in February, on supply disruption fears leading to high inflation and higher global interest rates, bringing forward the next recession.
In today's edition of What The FAQ, we explain this to you in detail.
First up, what has happened?
India's official currency Rupee has dropped 51 paise to an all-time low of Rs 77.41 against the US dollar during early trade on Monday, May 9. The domestic currency is also under pressure because of undebated FII (foreign institutional investor) selling, who have been net sellers for seven straight months with selling close to $22.31 billion in equities. This is the fifth consecutive session when the currency weakened.
What is the reason behind this?
The reason behind the drop in value of the Rupee could be blamed on the demand for riskier assets and also because foreign investors continue to dump domestic stocks. Investors are also worried that the broader Asian stocks could decline further due to the tightening COVID lockdown in Shanghai, which could, in turn, hit global economic growth.
So, who is the main culprit?
Oil prices have soared to the highest level since July 2008, after the USA said it was exploring a probable embargo on Russian supplies with its allies. Brent crude, the global oil benchmark, spiked to above $139 a barrel, before easing to around $130.
Energy markets have been rocked in recent days by oversupply fears triggered by the Russian invasion of Ukraine, due to which, India has faced a drastic rise in the energy costs such as fuel prices and household bills. It is a known fact that a rise or fall in crude oil prices impacts the prices of several commodities. And when it affects the prices of commodities, it affects companies. The current rise in crude oil hence has made worse the investor sentiments in the markets of India.
What are the experts saying?
As per the report of Business Today, Forex traders quoted that, risk appetite has weakened amid mounting concern about inflation that may trigger more aggressive rate hikes by the global central banks. On the domestic equity market front, the 30-share Sensex was trading 737 points or 1.34 per cent lower at 54,098.58 points, while the broader NSE Nifty declined 220.25 points or 1.34 per cent to 16,191.00 points.
But what should the investors do?
Analysts suggest that investors should stay invested if they have a long-term investment plan and mutual fund investors should continue their SIP plans without breaking the investment.
On the other hand, a big correction will offer an opportunity for investors to pick up good quality stocks at attractive levels. "Investors should wait and watch the unfolding situation before making any major commitments. Buying should be confined to stocks/segments which are fairly valued or have good earnings visibility," they said.
It is advisable that all investors should follow a wait-and-watch strategy and avoid any fresh entry at the current juncture.
When was the last time we saw such low value in the market?
The rupee opened at 77.17 against the dollar and then lost ground to quote at 77.42, registering a fall of 52 paise from the last close and slipping past the previous all-time low of 76.98 touched in March. It had slumped 55 paise to close at 76.90 against the American currency on Friday.