Sensex Opens Marginally Higher; Rupee Hits Record Low

Asian shares are trading on a negative note today. The Nikkei 225 is down 0.15% while the Shanghai Composite is trading down by 0.16%.

Back home, India share markets opened the day marginally higher. The BSE Sensex is trading up by 32 points (up 0.1%) while the NSE Nifty is trading up by 13 points (up 0.1%). The BSE Mid Cap index is trading down by 0.2%, while the BSE Small Cap index is trading flat.

Sectoral indices have opened the day on a mixed note with IT stocks and consumer durable stocks witnessing maximum buying interest.

The rupee is trading at 71.26 to the US dollar. The Indian rupee is witnessing selling pressure today as it opened its session to hit a fresh record low of 71.28 against the US dollar.

Yesterday the rupee closed to a record low of 71.21, down 22 paise from Friday's close of 70.99.

The rupee has been witnessing selling pressure lately on the back of many factors such as rising current account deficit, rising global crude oil prices, and tepid export growth.

It has been falling against the US dollar since the start of this calendar year.

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate than earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import most of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

Apart from the above issues, the falling rupee is also posing a big risk to the unhedged foreign currency borrowings. Meaning liability on these loans could up exorbitantly because of unfavorable forex movements.

From the food & tobacco space, ITC share price will be in focus today on the announcement that the company is planning to launch ready-to-drink, milk-based beverages next month that will compete with the likes of Coca-Cola, Amul, and Britannia.

To know more about the company, you can access to ITC latest quarterly result analysis and ITC Ltd company factsheet on our website.

In the news from the banking sector, IDBI Bank share price will be in focus today as the Life Insurance Corporation of India (LIC) board is set to meet today to decide on the modalities for increasing its stake in the bank to 51%.

As per the news, the board will discuss a timeline for the open offer, board-level appointments, and future strategy for revitalizing IDBI Bank.

The above development comes as earlier last month, the Union Cabinet and the Insurance Regulatory and Development Authority of India (IRDAI) permitted LIC's proposed plan to acquire up to 51% stake in state-owned IDBI Bank.

As per the deal, LIC is set to pick up to 51% stake in the bank and the deal is expected to be closed in the next two months.

Speaking of the above deal, this attempt by LIC to bail out the troubled IDBI Bank is a classic case of the state insurer buying toxic assets.

In fact, LIC has been acting like the government's ATM for years. It has bailed out public issues of scores of PSUs. This is evident from the chart below:

LIC - The Default Bad Bank?

How the above deal pans out remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

Moving on... In the news from the macroeconomic space, activity in India's manufacturing sector slowed down as domestic orders went down.

As per the Nikkei Purchasing Managers' Index (PMI) survey, PMI in August stood at 51.7, a decrease from the 52.3 reading in July.

However, it should be noted this is the fourteenth consecutive month that the manufacturing PMI remained above the 50-point mark, which separates expansion from contraction. Notably, the PMI reading in June had expanded at its fastest pace in the last seven months.

The PMI is the reading of the country's manufacturing sector output and is updated monthly. A reading above 50 indicates expansion, while any score below the mark denotes contraction.

Though Indian manufacturers remained cheerful about growth prospects, worries about the possibility of unexpected policy decisions and a risk of an international trade war weighed on confidence.