Rupee at all-time low: How will it impact your equity mutual funds?

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The Indian Rupee fell to a record low of 77.52 against the US Dollar on Monday on sharp increase in crude oil prices and the US Fed hiking interest rates. The fall in rupee has a domino effect in the stock market. It hit almost all equity mutual funds. However, some equity mutual fund categories like IT sector funds and pharma funds benefit from the fall in rupee.

“Depreciation in rupee does not impact all equity-oriented mutual funds uniformly. Rupee depreciation largely benefits export-oriented sectors such as IT, Pharma Textiles as well as Speciality Chemicals. So, IT and Pharma sector funds as well as diversified equity funds having higher exposure to these sectors may stand to benefit. That said, the sector specific dynamics also matter and play a role in the performance of these funds. Therefore, rupee depreciation should not be the sole criteria for investing in these funds. In addition to that, global funds or funds having exposure to international stocks, particularly from the US, are also direct beneficiary of rupee falling. On the other hand, import oriented sectors may face challenges,” says Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

A sell-off in the global equity markets which was triggered by hike in interest rates by the US Federal Reserve, war in Europe and growth concerns in China due to COVID-19 surge, led to the Rupee depreciation, analysts say. The effects of the lockdown in China has led to slowed export growth in April as the curbs halted factory production, disrupted supply chains and triggered a collapse in domestic demand.

“Rupee fell to fresh all-time lows on Monday as the dollar rose broadly against its major crosses. Last week’s central bank policy action led to heightened volatility in most of the currencies. Stronger dollar and sustained upmove in global crude oil price is weighing on the overall market sentiment. This week, focus will be on the inflation number that will be released on the domestic front as well as from the US. We expect the USDINR (Spot) to trade with a positive bias and quote in the range of 77.20 and 77.80,” says Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Here’s how equity mutual funds fared after the indices slid on Monday:

MF Categories 1-day returns (%) 1-week returns (%) 1-month returns (%)
Mid Cap funds -1.50 -5.49 -9.22
Small Cap funds -1.45 -5.65 -9.79
Energy sector funds -1.44 -5.71 -9.29
International funds -1.41 -2.65 -8.54
Consumption funds -1.25 -5.35 -7.14

Experts suggest that this fall should not make mutual fund investors change anything about their portfolio. They believe that short-term volatility is inevitable in the stock market. Himanshu Srivastara says that diversified equity funds will have investments in IT and pharma, which will cushion the portfolios in such times.

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