What rupee depreciation means for Indian investors investing abroad

The Indian rupee plunged to a record low for a second time this week at 77.63 against the dollar amid a broader decline in Asian currencies. the USD is up 4.3% against the domestic currency so far this year, according to Bloomberg data.

International investing acts as a hedge against rupee depreciation. With the recent rupee fall, Indian investors in US markets will stand to benefit, say experts.

“Your investments in the Indian stock market are in rupees. However, when you invest overseas (in the US stock markets) it is in dollars. You first convert your money into USD to invest and then back to INR when you redeem it. When the rupee depreciates against the dollar, it effectively means an additional return on your US investments,” said Viram Shah, Co-founder & CEO, Vested Finance.

If an investor had invested ₹3000 in a fund at the time when USD INR was Rs. 60 rupees per USD. This implies that the investment in Dollar terms is USD 50. If the fund earns 0% net returns then the investment value in USD terms is $50, explained Ram Kalyan Medury, Founder & CEO, Jama Wealth, SEBI Registered Investment Advisor while sharing the example.

When the investor redeems, if the USD/INR exchange rate is say, ₹70 to a dollar as compared to ₹60 when he invested, then the investor will get redemption proceeds of ₹3,500, clocking gains of ₹500 on an investment of ₹3,000. Thus, a depreciation of rupee results in gains for owners of assets and receivers of income in USD.

“This is supposed to result in significant gains for Indian investors who have already invested outside India. However, the math is not that simple, once we factor the market returns. Indian markets have given a much higher relative return when compared to the US markets. We suggest that investors not go overboard in foreign exposure; while some exposure is good, the allocations must be moderate,” said Medury.