Business, Finance, Strategy

Rupee weakens – More capital to flow into India

Today I just checked Google for the latest Dollar to Rupee conversion and this is what I found out (alongside) . Clearly, the Rupee is depreciating, and majorly against the dollar. So what is happening globally?

Due to the grim outlook for the global economy, in the short term, everyone wants to remove their investments from emerging markets and invest into safer bets. And the investor community thinks that investing in the US dollar is the safest bet out there. So what is expected? Clearly, in the near term, the current account deficit is expected to widen. Right now, the deficit stands at around 2.6% of GDP and can widen by 0.4 to 0.6 % depending on the volumes of investment outflows out of India, unless of course the RBI decided to intervene.

However, there is another side to this as well. Capital flow into India will strengthen. As we all know, the NRI community dominates among the top 5 percentile earning population in terms of money earned. NRI investors are definitely going to see this depreciation as an opportunity to invest in India – either in property or in insurance or simply in fixed deposits. What does that mean? A lot of money will flow back into the country since the investors outside India are going to get more value for their money in India. This is going to affect markets in many ways. Money that will make it into the Real Estate will make the Real Estate sector more resilient to price dips – something for which Indian consumers are hoping for. Money going into the investments sector is going to give banks the capacity to give more loans and that may lead to (hopefully) the lowering of interest rates – depending on the volumes getting into the sector. A lot of money will also be pumped into the PE / VC industry and consequently into startups. Overall, one tends to think that the current panic is a short term thing and over the long term, still India’s fundamentals are pretty OK and rupee will stay between 48-52 Rs to the dollar in near term.

What do you think? Let us know in the comments section.

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