Indian Rupee continues to slide against the US Dollar and has weakened by nearly 7 per cent in 2022. Historically, the US Dollar has shown appreciation against INR but the recent weakness in Rupee has been alarming to an extent. Over a longer term, INR has weakened against the dollar and the overall trend may take time to reverse. “The INR tested its lifetime low versus the US$, hitting 80 in trade on Tuesday. In case the INR was to appreciate, it can test the 78.20 level in an optimistic scenario. On the flipside the worst case scenario indicates a potential up to 83.50. These are targets over the next two-three quarters,” says Vijay Bhambwani, Head of Research, Behavioral Technical analysis at Equitymaster.
When INR becomes weaker, it means you need to spend more Rupees to buy the same amount of dollars. In 2017 you had to shell out Rs 64 to buy a dollar but now you need Rs 80, thus reflecting a weaker INR.
As an individual, you may require dollars when you travel abroad or for paying fees for your children’s education abroad. A better way to negate the impact of a stronger dollar is to own assets in US dollars. Parents can keep dollars in foreign bank accounts to fund their children’s education abroad or even buy US stocks, ETFs. Over time, as the INR weakens against the dollar, the effect is minimised.
“With the Indian Rupee depreciating over 7% against the US Dollar this year, there is an urgent need to offset the effects of a depreciating rupee and that can be achieved by investing in global markets,” says Raj Gandhi, Co-founder, DollarBull – Digital FinTech platform.
Buying US stocks helps in diversification of your portfolio and keeping dollars in foreign bank accounts, if education of kids abroad is on your radar, helps to minimize the negative impact of the INR-USD equation. “Future Dollar expenses are deemed to become more expensive, which is why Indian investors must begin by parking a percentage of their portfolio in the Dollar via US ETFs and Stocks,” adds Gandhi.
Remittances abroad are governed by the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS). Under the Liberalized Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.