Slowing GDP Growth, Falling Rupee Worry Stock Market Investors
Finance Minister Nirmala Sitharaman with Governor of Mizoram Gen VK Singh Image credit X.com
India Inc Slipping into ‘Chakravyuha’ amid Weakening Rupee
By S Jha
New Delhi, January 23: The investors are becoming worried with falling rupee amid slowing economic growth. They are also getting worried at prospects of the rising debt costs of the India Inc amid weakening of the rupee against dollars.
Rupee on Thursday closed at 86.51 against dollar. Rupee is steadily declining against the US dollar.
Market experts are worried that large corporate houses such as Reliance Industries, Tata, Adani Group, Vedanta, SBI, Bajaj Finance and several others have large dollar loan books. Weakening rupee will add debt burden on such companies, the investors argued.
In one of the investors WhatsApp group, a market participant quoted Arvind Subramaniam, former Chief Economic Advisor (GOI) and currently Senior Fellow at the Peterson Institute, saying: “Rupee’s further decline cannot be avoided. The only question is: how much more decline?”
Subramaniam along with two other economists Josh Felman, former IMF Representative in India, and Abhishek Anand, Founder of Insignia Policy Research, published an article in Business Standard.
They further argued their cases on the social media platform X, while sharing their arguments in a series of posts. They asserted that the “RBI’s new governor Sanjay Malhotra is a victim rather than the perpetrator of the currency situation”. They claimed that rupee is still overvalued.
“A lot more decline of the rupee against the dollar must happen, especially if the US imposes tariffs,” investors quoted the economists arguing in their posts with summary of the arguments.
The investors are also worried that bears in the currency markets will keep shorting the rupee. This can accelerate the decline of the Indian currency.
Market participants are growing jittery that dollar will further strengthen with US President Donald Trump taking charge of his country. The pace of de-dollarisation will slow down, they argued.
Market participants are also growing worried that “in case of large and rapid rupee decline, the economy and stock markets may face disruptions”. The decline of rupee may also hurt the corporate earnings with more outgo on debt servicing, they argued.
“Several companies have huge US dollar debt — external commercial borrowings (ECBs). Indian companies’ ECBs almost doubled from $26.6 billion in FY2023 to $49.2 billion in FY2024,” said a note in an investors’ group.
They argued that if the rupee becomes significantly weaker, the debt and interest repayment burden of Indian companies will go up since debt has to be repaid in dollars only. Also, they argued, if the rupee becomes significantly weaker, the FIIs’ large holdings of Indian stocks will lose their value, which may trigger flight of capital.
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