Will a volatile rupee make the stock market even more volatile?

From left to right V Nagappan, member, adivisory committee, Madras Stock Exchange Ltd (MSE), Bobby Srinivasan, professor of Institute of Financial Management & Research (IFMR) and Mr. Shyam Sekhar president TIA at the Business Standard Smart Business event held on 19th July 2013 in Chennai in association with Tamil Nadu Investors Association (TIA).

Considering the looming economic crisis over the Indian economy, trading in the Indian stock market with a longer term perspective is dangerous, say experts. The better idea would be to set a target, go for short-term investments, achieve the target and exit.

Speaking to the investors in Business Standard Smart Business in association with Tamil Nadu Investors Association (TIA) on 'Rupee Volatility and its impact on Stock Market', Dr. Bobby Srinivasan, professor of Institute of Financial Management & Research (IFMR), said that it is good to be a short-term trader because volatility will provide the opportunity.

Rupee volatility can cause stock market volatility and the stock market volatility can drive the Foreign Institutional Investors (FIIs) away from the Indian market.

Mr. V. Nagappan, member, Advisory Committee, Madras Stock Exchange Ltd (MSE), said that the withdrawals and subsequent repatriation of FIIs in the Indian markets has its impact on Rupee.

The widening Current Account Deficit is a major concern to stabilize Rupee. He added that the disproportionate investment into unproductive assets like gold and silver is one of the reasons for the crisis and banks should not be encouraged to sell gold.

While investing or choosing companies, one cannot look at the Rupee-Dollar movements alone in isolation. Various other factors also play a dominant role in a company’s progress. One should evaluate an investment based on the pros and cons individually.

The sectors which are likely to be benefited by the current trends is the export oriented firms like IT and pharma, but all companies in these sectors would not have benefited, since some of them would not have hedged their positions. Preference should be given to companies with high level of corporate governance as some of them keep changing the accounting practices.