The fall in the rupee presents both risk and an opportunity. The Indian currency has fallen about seven per cent since April 1, 2013 and corporate India, which has outstanding foreign loans, will take a hit while companies that have foreign exchange earnings, such as IT, Pharma and Export oriented firms, would be beneficiaries. A. Increased Balance Sheet Stress due to Forex Debt/ Input costs Several corporate balance sheets, however, will take a hit following the plunge in the rupee. This hit is concentrated among a smaller group of companies. The US brokerage estimates forex liabilities of Indian firms at around $200 billion. A 5% move increases liabilities by $10 billion, it reckons. High amount of forex debt is likely to remain a concern for India Inc in a depreciating rupee environment – companies with natural hedges may not be impacted, and those with export revenue in US dollar or overseas subsidiaries with earnings in dollar may benefit. Winners and losers As far as individual stocks are concerned, the worst-affected from the rupee slide would be Bharti Airtel, Reliance Communications, Tata Power, Ranbaxy, United Spirits, United Phosphorous, Gesco and Bhushan Steel. Companies that are going to take the worst impact on their FY14 estimated pre-tax earnings for every five per cent depreciation in the rupee include Adani Power (-200 per cent), Indiabulls Power (-20 per cent), Jain Irrigation Systems (-15 per cent), United Spirits (-13 per cent), Maruti Suzuki India (-12 per cent), JSW Energy (-12 per cent), United Phosphorous (-8 per cent), HPCL (-8 per cent), IOC (-6 per cent), Educomp Solutions (-5 per cent), Adani Enterprises (-5 per cent), Hathway (-4 per cent), L&T (-3 per cent), NCC (-2 per cent) and Asian Paints (-2 per cent). There are beneficiaries from the rupee slide too. Companies that have a high proportion of export/dollar revenues will gain the most from the rupee depreciation against the US dollar. e.g. Sun Pharma, Lupin, Apollo Tyres, Bajaj Auto, Bharat Forge, Cairn India, Coal India, Essar Oil, HCL Technologies, Infosys, Mphasis, Infotech Enterprises, Bhushan Steel, Hexaware Tech, Wipro, Ranbaxy, Reliance Industries, MindTree and Tech Mahindra. B. Stocks with higher FII ownerships to get badly impacted Overseas investors have pulled out a staggering Rs 29,191 crore (over $5 billion) from the Indian debt and equities in less than a month due to weakness in the rupee. During 3-21 June, foreign institutional investors (FIIs) were gross buyers of debt securities worth Rs 8,385 crore, while they sold bonds amounting to Rs 32,549 crore translating to a net outflow of Rs 24,163 crore ($4.2 billion), as per Securities and Exchange Board of India ( Sebi) data. Moreover, FIIs have taken away Rs 5,028 crore (USD 848 million) from the equity market in June so far. High Correlation between Debt outflows and Rupee Depreciation Huge sell-off is attributed to weakness in Indian currency, which is instrumental in FIIs exiting the debt markets as rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with. List of Stocks with high FII holding (BSE 500) – Refer Annexure 1 attached with this email However, we would like to emphasize that sell off though possible in all stocks with high FII holding, its likelihood is higher in case of companies with stressed balance sheet, weak demand outlook and higher leverage and less likely in defensive space like IT and Pharma. Web Site: http://www.globecapital.com Disclaimer: The information and views contained herein are believed to be reliable but no responsibility or liability is accepted for errors of act or opinion. Readers using the information contained herein are solely responsible for their actions. Globe Capital Market Limited, its employees and its group companies shall not be responsible and /or liable to anyone for any direct or consequential use of the contents thereof. Either Globe Capital Market Limited or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s) or may engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
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