Global Integration and Rupee Depreciation: Are Times Good Forward?

Abstract

The S&P BSE Sensex has plunged over 1,000 points so far in August, weighed by a host of factors, including weakness in the currency, possible tapering of US Fed's bond-buying program and threats of ratings downgrade. The Indian rupee has depreciated by over ten per cent since May 2, 2013 against the US dollar, and eleven per cent against the Euro. Depreciating currency will adversely impact capital-intensive sectors and firms with foreign borrowings and those who import raw materials heavily. Automobiles, capital goods, petroleum, power and telecom companies will bear the brunt of a weak rupee. But sectors such as software services and pharma, with major export revenues, will benefit. The rupee's decline in the last six months has deep consequences for the Indian economy and various asset classes. Thus in the study, we examined the impact of rupee depreciation on broad and sectoral indices of BSE and NSE markets. Sample T-tests for means and variances were conducted on both the price returns and volume changes to understand the behavior of stock market in unison. The study finds conclusive evidence of impact of rupee depreciation on indices considered.