The rupee has been on a gaining-spree this year. Aided by sustained foreign fund flows, the domestic currency has steadily risen to a two-year high of 63.58 on August 3 from 68-a-dollar in February, which is a rally of 5.8 per cent. Analysts say the rupee, arguably Asia’s best performing currency, could appreciate further as the Reserve Bank of India at its policy review last week maintained its neutral stance which could mean more dollar inflows to the country.
The rupee’s strength has made investors in IT stocks jittery as a stronger rupee could impact their balance sheets. But investors in refiners, airlines, paints, jewellers, imported coal-based power producers are upbeat as a stronger rupee would immensely help improve profit margins of companies in these sectors.
Oil refining companies have rallied in view of twin benefit of rupee gain and fall in crude oil prices. Crude oil prices on Monday fell to $48.99 per barrel for Nymex/WTI crude while it was $51.78 per barrel for Brent crude at around 6 pm IST. HPCL rallied 6.13 per cent on BSE while Indian Oil Corporation and BPCL also gained 3.23 per cent and 2.11 per cent, respectively.
Airlines stocks are also in limelight. Jet fuel price, a major cost in running an airline, is directly linked to rupee’s exchange value against the greenback and crude oil price. Jet Airways rallied 4.07 per cent on Monday while SpiceJet rallied 7.91 per cent on Friday. Interglobe Aviation, the operator of IndiGo brand, also gained close to 1 per cent in the past two sessions.
Siddharth Sedani, head and vice-president, equity advisory, Anand Rathi, said, “Spicejet, Supreme Industries and Garware Wall Ropes are 3 stocks from our coverage which are positive from rupee strengthening.”
Supreme Industries is India’s leading polymer and resin processing company offering wide range of plastic products and has significant market share in segments like plastic piping, plastic moulded furniture and industrial products. Polymer and resin prices are co-related to crude oil price and thus will benefit from a stronger rupee.
Garware Wall Ropes, pioneers in the synthetic cordage industry, is also likely to benefit from a stronger rupee and lower crude oil price.
According to William O’Neil India, a US-based stocks research firm, InterGlobe Airlines will be a key beneficiary of the rupee appreciation, as fuel and lease rental expenses together constitute about 60 per cent of their costs.
With these expenses denominated in dollar, fluctuations in the rupee significantly impact the costs of the airline companies. Paint companies Asian Paints, Berger Paints and Kansai Nerolac will also benefit as they use crude oil derivatives as the raw material.
Tata Power will benefit from a pricier rupee as the price of coal that the company imports is linked to international prices. Another Tata Group company Tata Metaliks that manufactures pig iron, which is an intermediate product in the iron and steel industry, and also ductile iron pipes. “The manufacturing of pig iron involves the use of metallurgical coke, which is imported. As such, the appreciation of the rupee will have a favourable impact on the company’s margins,” William O’Neil India said.
Titan Industries, a manufacturer of watches and jewellery, will benefit from the growing demand for luxury items in India and Asia while its dominant pricing power allows the company to pass on price fluctuations in gold and other inputs. The company will also benefit from rupee appreciation since India is the largest importer of gold from the international market.
Another stock PC Jewellers, which is also likely to derive benefits from pricier rupee, has been importing gold from the international market. Castrol India, the largest manufacturer of automotive and industrial lubricants in the India, is yet another stock. Lubricant oil is the by-product of crude oil and the rise in the rupee against the dollar will strengthen its margin significantly.