The Indian rupee is fast losing ground against the US dollar. Since January 2022, the dollar (USD) is gaining strength against Indian Rupee (INR) and the weakening of the INR may continue further. The RBI’s dollar sales to defend the rupee have reduced its foreign exchange reserves to their lowest level in more than two years, which have contributed to the currency’s over 11% decline so far this year.
The primary reason as of now seems to be US Fed’s rate hikes. On the back of the recent strong US job numbers, the expectations for further significant Federal Reserve interest rate increases.
On worries about high oil costs, rising Treasury rates, FII withdrawals, and demand for the US dollar, the INR just hit new record lows. INR, against USD, dropped from 82.33 in the previous session to a record low of 82.66, and is expected that the Rupee may fall to 83.50 in the next few sessions. As of 1.30 pm on October 10, 2022, the forex rate was 82.4028.
It might take some time to reverse the long-term INR decline against the dollar, even though traditionally, the INR has weakened against the greenback.
You might think about investing in US stocks or keeping money in a foreign bank account if you’re thinking about sending your kids to a foreign school. Remittances sent abroad are governed by the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme. Under the Liberalized Remittance Scheme, all residents, including minors, are allowed to freely remit up to USD 2,50,000 per fiscal year (April – March) for any legitimate current or capital account transaction, or a combination of both.
For the latest updates on the US stock market, click here.
A weakening INR has an immediate effect on people who purchase dollars (using INR) to send money or make investments abroad. These investors stand to earn when the money is returned and converted to INR. With the same exchange rate as before, investors would now receive Rs 82.40 for every USD they convert to INR instead of Rs 74, the rate in 2017. So, a weaker rupee helps Indian investors hold US stocks by enhancing returns for the portfolio.
Assume that ten years ago, when the rupee was trading at Rs 52 to the dollar, you bought $100 in stocks. Therefore, your total investment was about Rs. 5,200. Now assuming the stock generated gains of roughly 12% CAGR over the previous ten years, the current value of your investments is around $311. At an assumed exchange rate of 81.5 rupees to the dollar, your investment is worth around Rs 25,000. Your actual returns are therefore 17%, with the depreciation of the rupee accounting for an extra 5%. Similar to this, if US investments do poorly, the loss is limited to the decline in INR vs USD.