Currency fluctuations usually have two aspects: depreciation and appreciation. When it comes to depreciation, it means a drop in the value of one country's currency compared to another. For example, say 1 US dollar, which was worth Rs. 70, now becomes worth Rs. 75. This shows that the Indian Rupee has weakened. Also, this situation is called “rupee depreciation” and implies that the rupee can now buy less in terms of US dollars.

On the other hand, currency appreciation means an increase in value. For example, say 1 US dollar, which was worth Rs. 75, falls to Rs. 70. In this case, the rupee has strengthened. This situation is called “rupee appreciation”.

It is worth mentioning that sectors like imports, IT, and pharma in India are deeply affected by such changes in currency value because they deal with international markets. In this article, let’s study the rupee impact on stock market in detail.

• Rupee appreciation hurts export-heavy sectors like IT and pharma. Their profits and stock prices fall due to lower earnings from foreign currency.
• Rupee depreciation benefits exporters. That’s because they receive more Rupees for foreign payments. This boosts their profits and stock prices.
• Currency fluctuations impact stock prices temporarily. That’s because, over time, the market balances itself, and these fluctuations don’t lead to lasting damage.

Firstly, understand that when the Rupee appreciates, it means the Rupee has become stronger than other currencies (like the US dollar). Generally, this is a good sign for the economy. However, it also negatively impacts certain sectors, especially those that rely on exports.

The biggest hit is taken by Indian IT companies, which earn most of their revenue from exports to foreign countries. When the Rupee becomes stronger, they earn fewer Rupees for the same amount of US dollars. This reduces their profits.

Along with IT companies, sectors like pharma, gems, and jewellery also suffer. These companies receive payments in foreign currencies, but when they convert them back to Rupees, they receive less money. This leads to lower earnings and a drop in their stock prices.

Therefore, we can state that rupee appreciation often hurts businesses that rely on “international sales”, and this rupee impact on the stock market can be particularly significant for companies with substantial export revenues.

Now, depreciation is the opposite of appreciation. When the Rupee depreciates, it is weakened against the US dollar. Such a situation makes imports more expensive and hurts companies that rely heavily on imported goods. This happens because they now have to spend more Rupees to buy the same amount of foreign goods.

As a result, their costs increase, which lowers profits. Also, stock prices of such companies often drop. This effect is felt even more by businesses operating in capital-heavy sectors and with foreign loans.

However, companies that rely on exports benefit from a weaker Rupee. Sectors like IT, jewellery and pharma, which suffered during the rupee appreciation, now benefit from a weakening rupee. That’s because when payments received in US dollars from abroad are converted back into Rupees, they get more money, which boosts their profits. This increase in profits often leads to a rise in their stock prices.

Hence, we can state that when the Rupee depreciates, “companies focused on exports” usually see a positive impact on their stock prices. These companies reflect a broader rupee impact on the stock market.

Currency fluctuations are caused by the market forces of demand and supply. These changes do affect the stock market, but the rupee’s impact on the stock market is usually short-term. For example, when the Rupee either appreciates or depreciates, certain sectors like IT or oil imports may be affected. However, these fluctuations generally balance out over time.

Be aware that in normal situations (other than recessions), the fluctuations in currency exchange rates cause temporary movements in stock prices. Later, the market gradually returns to normal, and the impact of these fluctuations doesn't cause any long-term or serious harm to the stock market.

However, if the economy is facing a major and extended recession, these currency changes affect the market more severely. In such cases, the stock market would struggle to recover from the impact.