Who Will Benefit Most When Dollar Touches Rs.57?

December 13, 2011

Who Will Benefit Most When Dollar Touches Rs.57?

Greetings from Hitesh!! Today USD touched an all time high of Rs.53. Media is busy talking about what next? Most of the analysts are talking about Rs.54.50 to Rs.55 as a next stop. My experience tells me that market never agrees with the masses…..it always surprises!!

How It Can Surprise?

To surprise the masses…..it has only two ways….either move down from Rs.53.50 to Rs.54 or go above Rs.55. Looking at RBI’s inaction, I feel market will surprise all by crossing Rs.55.

Who will benefit by this?

It is very normal to assume that those who are exporting will make the most……why? They will get Rs.53 per dollar of export instead of Rs.45 they used to get before Oct.,2011. In fact, IT companies are the ones who are being looked upon by investors as oasis in the dessert. Is it true? Let us see….

Normal practice of exporters:-

Exporters main business is to export service or a product…..to maintain the profitability in their core businesses they sell USD in futures against their receivables.

Eg. If XYZ Ltd has a expected USD flow for its services in 2012, January, February and March….and the deal is struck say in December, 2011…to maintain the rates…..it will sell for coming 3 months in advance at today’s rates….later when they receive USD from their customers…it is adjusted.

In such a case when USD moves to say Rs.57……they will get Rs.53 only….because they are selling now.

So, when USD moved from Rs.45 to Rs.53…….in a short span of 3 months…..they are not going to be benefited largely due to above practice.(I will prove this when the 3^rd Quarter results comes in January 2012.)

What about the new deals they are entering now, aren’t they getting Rs.53?

No, my dear….looking at 19% jump in dollar from Rs.45 to Rs.53…..the customers of our exporters (read US / Europe / Japan….they are already facing low demand), they are asking for rate cuts. So, our exporters have to reduce the price in USD…..and his effective yield per dollar is going down.

Eg. If I was selling a product at say USD 100….earlier I was getting Rs.4500 (45*100)….but now I should get Rs.5300 (53*100)…but the exporters are pressing me to cut the rates to USD 90….I end up getting Rs.4770 (53*90). Reduce this amount by increase in my cost due to inflation in India…..I may be getting little lesser than Rs.4500.

So, the popular belief that exporters benefit with increase in USD….may not hold true.

Then who is benefiting?

I have seen unique co-relation of some events every time dollar has gone up…….I had covered them in my November 23, 2011

Email “Inside Story of Dollar Appreciation and BSE Sensex”. ( if you have not read go on following link… http://insidestoryofdollarappreciation.blogspot.com/.)

During 2001-2003:- Bad economy news coupled with 9/11 event.

During 2008:- Again effect on economy due to problems in US.

Post October, 2011:- Sinking Indian Economy coupled with US/ Europe issues. This time there is no action by RBI in the market.

I do not say there was absence of other issues in the above mentioned time…..but BAD Economy is the common thread through out all the years.

Is Our Economy in BAD SHAPE?

Frankly, I am not an expert on economy. But when I wrote my very famous email…..Why I Maintain Sensex Will Go Up To 35000?(if you have not read…go to following link… http://bestofhiteshparikh.blogspot.com/2011/09/why-i-maintain-sensex-will-go-up-to.html?), I had categorically written I do not believe in man made figures and I would go with the movement of Saturn for last 100 years and its effect on world market.

Recent study of the Kotak Securities pointed out that there are anomalies in Export figures…..after that the government clarified that they increased the export figures by about USD 9 billion! Same way, they are also asking questions on FII figures. I am waiting for SEBI’s clarification. For so many times….I observed that the inflation figures given for the last months are revised in this month and also in the next months…downward or upwards !!

I want to make following case:-

Do not waste time in reading this figures…..they are not going to be the same in next month and month after that….so, why are you wasting your time for them today. For media, it is a business. Not for you!!

I would stick to the last 31 years average growth of 6.5% and Sensex growth of 17% something. ( Why? You can not manipulate for 31 years).

At 6.5% growth rate, Indian economy is way ahead of 3.8% growth rate of World economy. Sensex growth of 17% is way ahead of the inflation of 9% to 10%.

But my original question remains….Who Will Benefit Most When Dollar Touches Rs.57?

Biggest, smartest and the most influential investors have always made money by selling their dollar and investing in Indian equities in the past……but this time…..all my readers who read my emails and follow me….will also benefit. Now you are empowered with the secret knowledge, aren’t you?

My Personal Call:-

If you feel let down by negative news….if you feel like going away from the market…..please recite following mantra….. “Indian Economy is growing at 6.5% and Sensex is going up at 17%”…..this is very power full mantra. Just recite this for 108 times daily……no media demons will bother you hence forth. That’s my challenge.

Hope you enjoyed reading this email…This article is being sent as a part of investor educations initiatives taken by Destiny Management Services. We believe Education is the best place to invest. Do you agree?

Live With Passion…Invest With Passion.

Hitesh Parikh.