The sliding stock markets and depreciating rupee have impacted the foreign institutional investor (FII) inflows adversely and slowed down the growth rate on the domestic front, says an Economic Times report. The dagger of impending recession hangs over the US and Europe. With no immediate solution to the Euro zone problem in sight, the global financial markets can be best described as bleak.
The rupee fell sharply leaving little time for FIIs to react. Otherwise, the withdrawals would have been greater. The depreciating rupee can fuel inflation and the Reserve Bank of India (RBI) could be forced to tighten liquidity once again. This is, however, contrary to the expectations that the interest rate cycle has peaked and it was time for rates to ease.
The earnings downgrade is yet another contributing factor for the market’s fall. The depreciating rupee has made imported components costlier, thereby squeezing profit margins. Export-oriented firms like IT will fare well in the long term. Those investors who want to be safe can concentrate on sectors like pharma and FMCG that focus on domestic demand.
The depreciating rupee has pushed up the prices of electronic gadgets and home appliances. Car makers who import 10 to 40 percent of the components are contemplating increasing prices. This is an attempt to offset the increased import costs owing to the depreciating rupee. An increase in prices could span from Rs 10,000 for small cars to Rs 50,000 for luxury vehicles. The rising interest rates and fuel hikes have played spoilsport for the car industry that is brimming with a wide array of choice for consumers.