In the below table I have given a brief summary of how INR depriciation impacts the various categories of investors (Resident/NRI/Students etc.)
| Category | Effect of rupee depreciation & Remedial Steps |
| NRI/PIOs | Effect: Rupee depreciation has been positive for those remitting to India for investments or for household expenses of dependants etc. Remedial Steps: NRI/PIO should never base their remittance or India investing decision solely on the assumption that rupee will depreciate perpetually or make the mistake of timing their remittances w.r.t. the exchange rate. They should first decide whether they have long term plans of returning and settling in India. If yes, then they should systematically remit money to India to create a long term India portfolio with a larger focus on financial goals, risk appetite, Return to India plans, without losing too much sleep on exchange rate piece. For those who do not have long term plans of settling in India, they should first decide what component of their overall investment portfolio do they want to allocate to India and why. And after deciding on the optimum percentage should they remit & invest in India and not just because rupee is depreciating. NRI investors (especially where the person is a geographically mobile one not sure on which country he will be in the next 15-20 years) should not lure themselves into investing entire funds in NRE Deposits unless intention is very clearly to settle in India in long term. |
| Indian residents planning an overseas holiday | Effect: A definite increase in the overall cost of the trip as compared to the budgeted outlay Remedial Steps: Make your travel plans well in advance and lock in at a particular exchange rateTake into account that there may be last minute adverse rate movements so plan in advance accordinglyIf the increased cost of trip is making you uneasy, reduce the duration of trip, be a bit frugal on expenses and shopping or instead prefer Indian or Far East destinationsFor your expense requirements, consider loading it in prepaid forex cards well in advance to negate sudden depreciation during travel time |
| Indian students going for higher studies abroad | Effect: Increase in total layout for education which apart from tuition & other fees, include living expenses, travel expenses to and from India etc. Remedial Steps: Explore making a higher down payment or explore a top up loan on the original loanIf the gap between original outlay on kid’s education and actual becomes too big, parents should never dip into their own long term retirement corpus. They can counsel their children to explore alternatives one of which includes exploring Indian universitiesOn a general note, when Indian parents plan their finances and are keen on sending kids abroad for higher education, they must not ignore the exchange rate risk involved and investment allocation should be geared in such a way that this risk is reduced by taking a small strategic exposure to foreign equities and gold as well. |
| Indian salaried employees | Effect: For employees working in import sensitive sectors like automobiles etc, rupee depreciation can hurt the company’s bottom line as price of product increases due to increase in input components which are imported. Situation can be more troublesome if company has foreign borrowings on its balance sheet. Employees should keep a keen watch on company’s financial developments, be ready for lower than expected or zero increments, or even layoffs. For those working in export sensitive sectors like IT, the rupee depreciation will have a positive rub off. Remedial Steps: Defer high ticket purchases due to possibly low/nil increments. Maintain a decent contingency fund at all times. Keep an eye on one‘s unique skills sets and learning and add value to the workplace. Also keep a sense of the job market and stay connected with peers and seniors, just in case you need to make a shift from your existing job. |
| Indian Resident Investors | Effect: Companies having a high proportion of foreign currency debt on its balance sheet and having a high dependence on imports can suffer a hit on the bottom line and consequently the share price. Remedial steps: Investors investing directly in equity for short term should review their holdings and take an appropriate call on such companies. In general, investors should follow a bucketing strategy while doing investment planning for their financial goals: short term goals should remain in fixed income instruments to insulate them from such events. Appropriate asset allocation/diversification should be done for long term investments. Beyond a certain size, an investment portfolio must include a small strategic long term exposure to foreign equities and gold to balance out the effects of such events and achieve diversification at an asset class level and geographical level. |
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