Rupee headed towards 72 levels; IT, pharma stocks to benefit, say analysts

Rupee may fall further if global concerns, including US's protectionist measures against countries such as Turkey and China, persist.

After a firm opening, the rupee hit an all-time low of 70.1 per dollar on Tuesday, as concerns of Turkey’s economic crisis, triggered by plunging Turkish lira, aided the dollar to gain against all major global currencies. The sell-off spilled over to other emerging-market currencies after the country’s president showed no signs of backing down in a standoff with the US.

On Monday, the currency had recorded its biggest intra-day fall in five years, hitting a low of 69.93 per dollar.  The rupee has dipped by 9 per cent to date in the year – making the Indian unit the worst performing currency in the Asian region – while lira lost its value by 45 per cent and the Russian ruble by about 15 per cent.

However, the rupee may fall further if global concerns, including the US’s protectionist measures against countries such as Turkey and China, persist, analysts say. They expect it to slide to Rs 71-72 against the dollar going ahead. Already, higher crude oil prices, a widening trade deficit, and the exit of foreign investors from India have had a negative impact on the currency this year.

According to Gaurang Shah, head investment strategist at Geojit Financial Services: “The fall will continue if the Reserve Bank of India (RBI) doesn’t intervene. We will have to wait a and watch for the next few days to see how the central bank responds to the drop, which will in turn also affect the stock markets.”

Given the fall over the past few sessions, technical analysts say the rupee has some support at 69.3 levels.

“Absence of aggressive intervention by the RBI has spooked the market. Since the rupee has plunged to 70 levels, 70.50 level will be the next short-term resistance while 71.00 will be the important level to watch out for.  On the downside, immediate support is around 69.30 levels,” said Rushabh Maru, research analyst at Anand Rathi Shares in an emailed note.

IT, pharma stocks to benefit

As regards markets, apprehensions about turmoil in the Turkish economy that spooked sentiment globally also triggered a correction in the Indian stock markets, which slipped over 0.5 per cent on Monday. The consumer price inflation (CPI) print for July at a nine-month low of 4.2%, however, propped up sentiment on Tuesday.

“RBI selling dollars and decrease in foreign investments are other factors besides the global rout in currencies that led to this fall in the rupee over the past few sessions,” says AK Prabhakar, head of research at IDBI Capital.

However, both Prabhakar and Shah expect the markets to remain range-bound for the coming months ahead of the state elections. Among sectors, they expect information technology (IT) and pharma to benefit from the fall in the rupee.

“Fall in rupee will lead to a rise in share prices of IT, pharma and other import-related stocks, which will balance-out the fall in the markets. Therefore, the market sentiment will remain neutral for the coming few months,” Prabhakar adds.