Rupee's decline likely to aid export-oriented companies

Analysts bet on earnings boost from currency carnage

With the rupee falling to an all-time low, companies that provide services and products abroad and earn in foreign currencies could outperform the market. Sectors such as information technology (IT), pharmaceuticals and textiles are likely to report an increase in earnings, as the foreign exchange rate moves in their favour, experts say. On Thursday, the rupee hit a low of 59.98 against the dollar, before closing at 59.58.

Sandeep Singal, co-head (institutional equity), Emkay Global Financial Services, said as the rupee fell, export-oriented stocks were expected to do well. “The IT and pharma sectors are pretty sensitive to the rupee. We are expecting a good upside in stocks belonging to this sector. However, we don’t know for how long the rupee’s decline would last,” he said.

V K Sharma, head (private broking and wealth management), HDFC Securities, said pharmaceutical stocks might fare better than IT ones. “The pharma sector is better in terms of revenue growth, while information technology continues to face various challenges,” he said. Companies in sectors such as information technology and textiles often lack pricing power. Owing to this, there was pressure to reduce prices, in line with the depreciating currency, he added.

On Thursday, some textile companies fared better than the Sensex — Alok Industries and Arvind outperformed the market. While Arvind fell 1.77 per cent to close at Rs 77.55 on the National Stock Exchange, Alok Industries closed flat at Rs 7.35.

On Thursday, the S&P BSE Healthcare index recorded the best performance among sectoral indices. The index, which tracks the IT sector, fell 2.14 per cent compared to a 2.74 per cent drop in the Sensex.

“Analysts had expected the rupee to decline from Rs 52-54 levels to Rs 58-levels in FY14. That is a depreciation of eight to nine per cent. So, the depreciation of the rupee to current levels would mean the earnings per share of these companies would benefit,” Singal said..