Market outlook - Geojit BNP Paribas Financial Services Limited

- Over the past 7-8 months, the rupee has depreciated about 25% against the USD and it is one of the sharpest declines among Emerging Market currencies.

- Stabilisation of the rupee seems to be a precondition for FII flows to resume.

- From purchasing power parity argument, the theoretical "fair value" of the rupee against the USD is estimated at Rs.53 approximately. At the exchange rate of Rs.55.3 for a dollar, the rupee seemed to have undervalued by 4-5%. Hence, it is expected that rupee would stabilize at the current level, unless the risk appetite is significantly reduced by uncertainties in the European economies.

- The balance of payment (BoP) in FY13 is expected to be negative by around -0.6% of GDP, almost same as that in FY12. However, this may turn marginally positive (about 0.3% surplus) if crude oil price and gold imports turn 10% each lower than market estimates.

- Gainers from the rupee depreciation are exporters including IT, pharma and commodity sectors such as oil and metals. However, many metal companies have foreign debt, which minimizes the beneficial impacts.

- Losers from a depreciating rupee are importers and companies that have substantial foreign debt.

- Some of the stocks have over-reacted to the rupee fall. Wipro, MindTree, Cairn India, ONGC, SAIL, NHPC, Tata Steel and NTPC are among them.

- Of the above, the first three (Wipro, MindTree and Cairn) are beneficiaries from the falling rupee. Last four (SAIL, NHPC, Tata Steel and NTPC are losers as they have substantial foreign debt. However, the reactions in these stock prices appear much more than what is warranted.

Source : Equity Bulls

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