Emerging Market Currencies vs USD

The talks of United Stated Fed tapering has made emerging market currencies go into tailspin. Some countries such as India and Brazil has lost more than 15% of it's currency value against USD since 1st of May 2013 which has led to both equity and bond market selloff. Indian Rupee fell to all time low of Rs 64.50 against the greenback on 21st Aug 2013.

Indian Rupee hits all time low against US dollar: Indian Stock Market crash possible

The Indian rupee (INR) today hit its lifetime low of 52.84/85 against the dollar (USD) as demand for the US currency soared amid signs of FIIs pulling out money in the wake negative growth in industrial production in October. In the forex market, the rupee opened lower at 52.09/10 a dollar and dropped further to finish at all-time record low at 52.84/85, down 81 paise, or 1.56% from its previous close.

In the article dated 9th Sep 2011 titled 5 year USD INR Chart, InvestorZclub predicted that the rupee would continue to stay weak due to unfavourable factors, which were clearly visible in the chart.

The currency fall is not at all good for our economy and stock markets and might lead to derating of the premium valuation multiple that we have been enjoying since past few years due to consistent 8% plus GDP growth. But now as growth is expected to slow down significantly in FY 13 it is almost certain that we no longer deserve premium valuation and should trade at multiples similar to our asian peers. 

5 Year Chart - USD vs INR

Indian Rupee hits 52 week Low against USD

INR vs USD 1 Year Chart

Indian Stock market showing initial signs of weakness

Indian stock markets have started showing some weaknesses on the back drop of FII outflow. Both SENSEX and NIFTY are down close to 2% in early trades today. The reason seems to be obvious. The rupee has depriciated by 2% in last 3 days and the SENSEX and NIFTY are down almost 4 % from the recent peak. So all in all there is a loss of 6% for FIIs in dollar terms. Since in short to medium term the direction of rupee seems to be downward, they might be worrying about further losses on currency side and that is why taking some money of the table before the majority of the gains get wiped out.

But this correction is healty as Mutual funds and Retail Investors have been out from the market and were waiting for corrections to get in. One should not panic by the volatile movement of the SENSEX and NIFTY and stay calm. A 5% correction from the current levels of 20000 SENSEX should provide good entry point for investors. However one should still follow bottom up approach of stock selection and buy where the business outlook is good and valuation is reasonable.