AI in Futures Trading – How Algorithms Predict Market Moves

Have you ever thought of getting benefits from a fall in the value of an asset in the portfolio?

Sounds interesting, right.

Well, the answer is Yes.

You can take advantage of the assets whose values are decreasing day by day.

The term is known as tax-loss harvesting. Investors often use tax-loss harvesting to improve stock trading returns.

As honest citizens, paying taxes should be our responsibility so as to ensure the country’s security, progress and well-being.

Actually, no one wants to pay a huge amount of their earnings as income tax. Those, who come under the category of high income, have to pay a huge percentage of tax. For instance, the total tax liability of a salaried person could be around 30% which makes a huge impact on their finances.

Tax-Loss harvesting is the way through which you can increase post-tax returns on investment. With this method, you can maximize wealth aggregation especially at the beginning of the portfolio.

Table of Contents

1. Understanding Tax Loss Harvesting
2. Examples of Tax Loss Harvesting
3. Three Ways to Minimize the Tax

Understanding Tax Loss Harvesting in Simple Terms

To get a brief of tax-loss harvesting and how it helps you minimize your long term capital gains, you need to know how long term capital gain is taxed.

Long term capital gains on equities are re-introduced by the late finance minister Mr Arun Jaitley in 2018.

As per the provision of the financial budget of 2018, any long term gain made from equity investment above 1 Lakh per year is taxable at 10%.

Here, the long term capital gains are the return you make by selling equity investment held for more than 12 months.

If you are a newbie into the stock market or mutual fund, your yearly gain may not necessarily cross the amount of Rs 1 Lakh.

But if you continuously invest and gain share market trading returns, in the long run, you will be in the situation to cross the threshold after some time.

Let’s understand it with an example:

If you invest Rs 5000 per month in equity funds with an average return of 12%, you will easily achieve taxable gains in the span of 2 years.

Here, we present a table where you can see the SIP amount and capital gains with annualized returns of 12 per cent in different periods.

SIP AmountAfter 24 MonthsAfter 36 MonthsAfter 48 MonthsAfter 60 Months5,00015,32535,39665,0761,05,5188,00024,52056,6341,04,1221,68,82912,00036,78084,9511,56,1832,53,24315,00045,9451,06,1891,95,2293,16,55430,00091,9492,12,3783,90,4586,33,108

Hence, people who have large equity portfolios will have huge gains. If you want to pay no tax or less tax, make sure these gains should not exceed the tax-free limit. That’s where tax-loss harvesting comes into play.

Tax Loss Harvesting

Tax-loss harvesting is a way of selling a part of your mutual fund units in order to book long term capital gains and start reinvesting the same amount in the same mutual fund.

Still not understand? Let’s take another example:

Example 1

Let’s assume you have invested Rs 6,00,000 in an equity mutual fund on 21 August 2021 and on 31 August, the value of the investment becomes Rs 6,90,000.

Now, if you redeem the investment, your gain will be Rs 90,000 and hence your tax liability will be zero. As the tax has to be paid only if gains exceed the limit of Rs 1 Lakh.

Now, if you reinvest the entire amount i.e. Rs 6,90,000 after redeeming in the same mutual fund, it will be counted as a fresh investment along with the date of investment.

If the investment value increases up to Rs 7,50,000 post 1 year. When you redeem the investment amount, your gain will be Rs 60,000 which is less than Rs 1 Lakh.

Had you not redeemed Rs 6,90,000 and reinvested in the same mutual fund, your long term gains would have been up to Rs 1,50,000 and hence, you are required to pay 10% tax on the amount which exceeds Rs 1,00,000.

Now, you have to pay tax for the amount above Rs 1 Lakh. hence, the tax applicable would be Rs 5000 i.e (10% of 50,000).

Still, Confused? Let’s take another example:

Example 2:

Tax-loss harvesting allows you to book losses and use the loss amount to offset capital gains in another instrument in order to minimize liability.

For instance, if you invest Rs 2 Lakh in a fund on 2 August 2021 and on August 15, 2021, your investment value would is Rs 1.85 Lakhs. Hence, your long term capital loss is Rs 15,000.

Now, if you sell the investment instrument, it is obvious you are suffering from losses, but you can use the entire loss amount to offset any long term capital gain in order to bring down tax liability.

For instance, within two years, you sell a long term capital gain and book a profit of Rs 1.5 Lakh. Since the capital gain is above 1 lakh i.e Rs 50,000, you have to pay tax.

Now, you may decrease the total tax applied on Rs 50,000 by subtracting the Rs 15000 from Rs 1.5 Lakh.

Hence, your long-term capital gain will be Rs 1.5 Lakh - Rs 15,000 = Rs 1,35,000. Now you need to pay tax only at Rs 35,000 not on Rs 50,000.

This is how the tax-loss harvesting strategy works. It saves tax for many investors.

Ways of Minimizing Tax Liability

Here are three ways a person can minimize their tax liability:

Tax Planning

Tax planning is a legal method used to minimize tax liability. This can be achieved with proper tax planning. A person can easily minimize tax by taking advantage of many things such as exemptions and deductions.

Tax Avoidance

Many people compare tax avoidance with tax evasion. However, they are different t methods. Tax avoidance is a legal method that helps investors to minimize their taxes. It is the use of smart strategies to reduce a person’s tax liability.

Tax Evasion

Tax evasion is an illegal way of minimizing tax, which is also known as tax fraud. We strongly advise you to stay away from such fraudulent methods.

The Bottom Line

Tax gain and tax loss harvesting are the best ways to minimize the tax you normally pay on equity trading investments. Do remember, you have to reinvest the money as soon as you get the redemption amount in your account.

The BSE stands for 'Bombay Stock Exchange. Established in 1875, BSE is the first and one of the major stock marketplaces in India's. The NSE is brief for National Stock Exchange.

BSE - Major Stock Market in India

Established in 1972 somewhat later than BSE, the stock exchange is identical to BSE. While BSE is older, NSE is higher with more everyday business and more sales.

The Sensex is a free-floating stock market index of 30 well-established firms that are financially healthy and listed in BSE and has been in operation since 1875.

In addition to the popular Sensex, BSE employs additional stock indexes.

BSE 100 and BSE 500 are the indicators. Sensex is the pulse of the domestic stock exchanges in India and was listed on 1 January 1986. On 1 April 1979, the base value of the Sensex and its base year 1978-79 is taken as 100.

Sensex is a weighted index of market capitalization. The overall market value of all 30 stocks in various industries is reflected. The total value for the market is calculated by multiplying the stock price by the number of outstanding shares.

The Sensex daily computation should be done by dividing an index number known as the index divider of the total market value of the 30 businesses. The splitter covers the original Sensex base period.

SEBI CEO Ajay Tyagi made his opinion on retail investors' interest in the Indian securities market implying that it has grown dramatically to average 2.45 million Demat monthly accounts during April-June.

The cumulative total Demat Accounts rose to 55 million, from 41 million at the start of FY21 to 34.7% at the conclusion ofFY21.

In the year from 2019-20, capital-acquisition cash market sales grew by 70.2 per cent from Rs 96.6 lakh crore to Rs 164.4 lakh crore in 2020-21. Furthermore, the share of people in sales rose by around 5 percentage points to 51.4%

The major reasons behind these were the existing low-interest rates and the easy availability of money are key reasons for India's growing investment interest.

While the convenience of stock market trading on new technological platforms, including mobile phone applications, has also led investors to the stock market, the absence of adequate real estate and debt instruments returns also added to their numbers.

Here is a Timeline of Sensex:

Here is the Sensex journey starting from level 1,000 to 60,000. July 19901001 January 19922020 February 19923,000 March 19924,000 October 19995,000 February 20006,000 June 20057,000 September 20058,000 December 20059,000 February 200610,000 March 200611,000 April 200612,000 October 200613,000December 200614,000 July 200715,000 September 200716,000 September 200717,000 October 200718,000 October 200719,000 December 200720,000 November 201021,000 March 201422,000 May 201423,000 May 201424,000 May 201425,000 July 201426,000 September 201427,000 November 201428,000 January 201529,000 March 201530,000 May 201731,000 July 201732,000 October 201733,000 December 201734,000 January 201835,000 January 201836,000 July 201837,000 August 201838,000 April 201939,000May-201940,000 26th November 201941,000 16th January 202042,00010th November 202043,000 18th November 202044,000 4th December 202045,000 9th December 202046,000 18th December 202047,000 4th January 202148,000 11th January 202149,000 21st January 202150,000 8th February 202151,000 15th February 202152,000 23rd June 202153,000 4th August 202154,000 13th August 202155,000 24th August 2021,56,000 31st August 202157,000 3rd September 202158,000 16th September 202159,000 24th September 202160,000

IT Companies Stacking up Against Accenture

In terms of technology innovation and strategy, Accenture has always been a market leader. Accenture has always been a forward-thinking company with swift decision-making capabilities. It has made significant investments in future technology and has been aggressively training its staff in specialist future skill areas to ensure that they are always future-ready. Accenture is also incredibly diverse, and it values both diversity and inclusion. It has a lot of wonderful people. Accenture has generated exceptionally in-depth and complete deliverables and artifacts based on each industry due to their extensive industry understanding. These objects are cutting-edge and can be deployed to the client in a matter of seconds.

Here you can know about the IT companies in detail –

Accenture

Accenture is a market leader in technology and a worldwide, digital, cloud and security professional services firm. They offer strategic and consulting, interactive, technological and operational services, all driven by the world's largest network of advanced technology and smart operations centers

The team constitutes of more than 500,000 individuals who serve customers in over 120 countries.

TCS

TCS is one of the world's top consulting firms and provides IT services with a $144+ B market capitalization. They have over 450,000 of the greatest IT experts, growth and digital transformation at a great level in order to become flexible, smart, automated and cloud-based.

Cognizant

Cognizant is one of the world's top businesses for business, operations and technology for customers in the digital era. They provide services such as the digitization of their products, services and customer experiences.

Cognizant is specialized in helping some of the world's most established companies stay among the most devoted brands in today's fast-changing technical landscapes by promoting all aspects of how they serve their customers.

Infosys

Infosys is a leading worldwide technology and consulting company. They have customers in over 50 countries to develop and implement digital transformation plans.

They assist customers in discovering and solving challenges effectively from engineering through application development, knowledge management and business process management.

HCL

HCL has 150,000+ employees in 46 countries globally and a global R & D network, innovation laboratories and delivery centers.

The main services and products are offered by three business divisions: IT & business services, engineering and R&D, and product & platforms, and they are a global leader in technology. In order to detect and solve difficult commercial issues across a large number of sectors, they have technologies such as AI, IoT, machine learning and cloud.

HealthPlan Services (HPS)

HealthPlan Services (HPS) is the nation's leading independent supplier of insurance and management services, benefits management, maintenance, reform and technology solutions.

It was formed in 1970 and employs 1,500 or more employees with its headquarters in Tampa, Florida. It is a leader in the insurance sector and provides connection exchange, administration, distribution and technology services to individual, small group, voluntary, and corporate insurers as well as useful solutions to thousands of brokers and agents around the country.

IPO Note

Aditya Birla Sun Life AMC Limited

• Incorporated in 1994, Aditya Birla Sun Life AMC is set up as a joint venture between ABCL and Sun Life AMC. The company managed a total AUM of ₹2,736.42 billion under mutual funds (excluding our domestic FoFs), portfolio management services, offshore and real estate offerings, as of June 30, 2021.
• The company has automated and digitized several aspects of its operations including in relation to customer onboarding, online payments and other transactions, fund management, dealing, accounting, customer service, data analytics, and other functions.
• The company is the largest non-bank affiliated Asset Management Company (AMC) in India by quarterly average assets under management (QAAUM) since 31 March 2018 and is among the four largest AMCs in India by QAAUM since 30 September 2011.
• Geographically diversified pan-India distribution presence covering 284 locations spread over 27 states and six union territories. The company’s distribution network is extensive and multi-channelled with a significant physical as well as digital presence, and included over 66,000 KYD-compliant MFDs, over 240 national distributors and over 100 banks/financial intermediaries, as of June 30, 2021.
• The company managed 118 schemes comprising 37 equity schemes (including, among others, diversified, tax saving, hybrid and sector schemes), 68 debt schemes (including, among others, ultra-short- duration, short-duration and fixed-maturity schemes), two liquid schemes, five ETFs and six domestic FoFs, as of June 30, 2021.
• Total QAAUM (excluding our domestic FoFs) has grown over the years and was ₹2,654.54 billion, ₹2,672.68 billion, ₹2,465.22 billion and ₹2,464.80 billion as of June 30, 2021, and March 31, 2021, 2020 and 2019, respectively.

KEY MANAGERIAL PERSONNEL

• A Balasubramanian is the Managing Director and Chief Executive Officer of the Company and has been associated as an employee in the Company since 1994.
• Mahesh Patil is the Chief Investment Officer who holds a bachelor’s degree in engineering from the University of Bombay and a master’s degree in management studies from the University of Bombay and has been associated with the company since 2005.
• Bhavdeep Bhatt is the Head - Retail Sales and holds a bachelor’s degree in commerce from Bhavnagar University and a master’s degree in business administration from Bhavnagar University and has been associated with the company since 2008.
• Anil Shyam is the Head - Alternate Business and holds a bachelor’s in commerce and master’s in finance & control from Himachal Pradesh University, Shimla and has been associated with the company since 2007.
• Parag Joglekar is the Chief Financial Officer and holds a bachelor’s degree in commerce from the University of Bombay. He is a member of the Institute of Chartered Accountants of India and is a member of the Institute of Cost and Works Accountants of India and has been associated with the company since 2006.
• Keerti Gupta is the Chief Operations Officer and holds a bachelor’s degree in science (home science) from Rajasthan Agriculture University, Bikaner, and a master’s degree in business administration from Maharishi Dayanand Saraswati University, Ajmer and has been associated with the company for the last 25 years.
• Vikas Mathur is the Head - Institutional Sales and holds a bachelor’s degree in electronics and communication engineering from the University of Madras, a postgraduate diploma in business entrepreneurship and management from the Indian Institute of Planning and Management and a master’s degree in business administration from the International Management Institute and has been associated with the company since 2008.

COMPETITIVE STRENGTHS

• Largest Non-bank Affiliated Asset Manager in India.
• Well-Recognized Brand with Experienced Promoters.
• Growing Individual Investor Customer Base Driven By Strong Systematic Flows and B-30 Penetration.
• Diverse Product Portfolio with Fund Performance supported by Research Driven Investment Philosophy.
• Geographically diversified pan-India distribution presence that is not only extensive but multi-channeled, with a significant physical as well as a digital presence.
• Franchise Led By Experienced and Stable Management and Investment Teams.
• Long-term Track Record of Innovation in and Use of Technology.

KEY CONCERNS

• The COVID-19 pandemic has had, and we expect it to continue to have, a material adverse effect on business.
• Revenue and Profit are largely dependent on the value and composition of the AUM of the schemes managed by us and any adverse change in our AUM may result in a decline in our revenue and profit.

The SME-IPO is purely OFS based where the company will not get anything from proceeding.

• Their market share might be eroded by competition from existing and future market competitors offering investment products.
• They rely heavily on the strength of their brand and reputation to succeed.
• The regulatory environment in which we operate is subject to change.

COMPARISON WITH LISTED INDUSTRY PEERS (As of 31st March 2021)

Name of the CompanyEPS (Basic)NAVP/EP/BRoNW (%)Aditya Birla Sun Life AMC Limited18.2759.1938.912.0230.87Peer GroupHDFC Asset Management Company Limited62.16224.2850.914.227.76Nippon Life India Asset Management Limited11.0450.2938.48.621.94UTI Asset Management Company Limited38.97255.3130.14.315.27

FINANCIALS (RESTATED CONSOLIDATED)

Particulars (Rs. In Millions)FY 2021FY 2020FY 2019Equity Share Capital180.00180.00180.00Other Equity16,866.1312,988.7312,025.65Net Worth17,046.1313,168.7312,205.65Revenue from Operations11,910.2812,338.3514,060.67EBITDA7,388.877,026.926,839.03Profit Before Tax6,958.886,607.296,457.67Net Profit for the year5,262.804,944.024,467.99

Outlook &  Company Valuation

The AMC industry has grown tremendously in recent years on the back of strong flows by the individuals as the AMC companies are increasing penetration across geographies. Also, the tech easiness is helping the millennials to get access to AMC easily.

• At the upper price band of Rs 712, the PE works out to be 33x based on annualized FY22 earnings which are slightly lower than peers. So there is room for minor listing gain also the IPO is purely OFS based.
• Thus, we assign a “SUBSCRIBE” rating to the IPO for the long-term investors. We believe that going forward the company will get benefit as the millennials are keen into the stock market and we have seen tremendous account opening which will lead to flow in AMC too.

The craziness of IPOs in India reaching new heights with reports claiming that it will hit the Rs 100 Lakh Crore IPO mark at the end of the year. As many companies had suffered from a big financial loss due to COVID 19 outbreak, this is looking like a positive sign.

The stock market has recovered well as we can see the Sensex is reaching new heights every day.

A positive stock market thing has grown up the confidence in the companies to go public to grab this opportunity.

As a result, numerous IPOs are expected to go live in October 2021.

IPOs in the Calendar Year of 2021

There are around 42  SME-IPOs registered in the calendar of 2021. And the total amount raised only through IPO in 2021 is around Rs 58,000 Crores.

The numbers are enough to tell you about the craziness of IPOs, but still, there is a lot to come this year.

Top companies such as LIC IPO, Ola, Nykaa, Star Health, Oyo, Policybazaar and many more are ready in the line.

Companies such as Zomato, Barbeque Nation, Paras Defense, Devyani International have closed their share issues with great success. While others are preparing to file their DRHP with stock market regulator SEBI.

Below is the list of companies that are ready to launch their IPOs between October 2021 and March 2022.

Companies Tentative Size LICRs 55000 CrorePolicyBazaarRs 6000 CroresEmcure PharmaceuticalsRs 4,500 CroresPaytmRs 16,600 CroresNykaaRs 4000 CroresPharmEasyRs 3700 CroresBoat ElectronicsRs 3500 CroresLava InternationalRs 2400 CroreStar health insuranceRs 2000 CroreMobiKwikRs 1900 CroresMedplusRs 1600 CroresPenna CementRs 1550 CroreHelthium MedtechRs 1,500 CroreSupriya LifesciencesRs 1200 CroreApeejay Surrendra Park HotelsRs 1000 CroreMedi Assist Healthcare ServicesRs 850 CroreHP AdhesivesTo be announcedDelhiveryTo be announcedOyo Hotels and HomesTo be announcedESDS Software Solutions LtdTo be announcedOlaTo be announcedAnand Rathi Financial Services LtdTo be announced

IPOs to Expect in October 2021

Here is a complete list of IPOs that are gearing up to go public in October 2021.

Note** - This information is unconfirmed and subject to change as further updates are available.

Company NameIPO Lot SizeExpected DateArohan FinancialsRs 1800 CroreOctober 2021MobiKwikRs 1900 CroreOctober 2021CMS InfosystemsRs 2000 CroreOctober 2021Star Health Allied InsuranceRs 3000 CroreOctober 2021NykaaRs 4000 CroreOctober 2021Emcure PharmaceuticalsRs 4500 CroreOctober 2021

Emcure Pharmaceuticals

Emcure Pharmaceuticals is an Indian multinational pharmaceutical company. Headquartered in Pune, Emcure Pharmaceuticals works in manufacturing, developing and marketing a wide range of pharmaceutical products worldwide.

The company was founded by Satish Mehta, a pharma distributor’s son. He started Emcure as a contract manufacturer for multinationals in 1981, then started to sell his own branded generics.

About Emcure IPO

Emcure is gearing for an IPO of about Rs 4,500 Crore. The public issue involves a fresh issue of equity shares of Rs 1100 Crores and an offer for sale of nearly 18 million sales by the current stakeholders and promoters.

The company uses these funds to repay its current debt.

Nykaa

Nykaa is an Indian eCommerce company, primarily known for selling beauty, fashion and wellness products across websites.

Nykaa was founded in 2012 by Falguni Nayar, a former managing director at Kotak Mahindra Capital Company. Earlier, it was launched as an eCommerce portal, serving a wide range of beauty and wellness products.

In 2015, the company expanded its business and began selling fashion products online. In 2018, Nykaa launched Mykaa men with an intention to provide multi attire for men’s grooming.

In 2020, Nykaa launched Nykaa Pro. It's a premium membership program that provides special access to professional beauty products.

About Nykaa IPO

The total valuation of the total public issue is Rs 4000 Crore. It comprises fresh issue shares of Rs 525 crores and an Offer for Sale of up to 43 million shares.

The user base of Nykaa has been constantly increasing every year. Right now, the company has about 1.5 million shares. The company has more than 1200 brands on its website.

As of November 2020, Nykaa has a valuation of $ 1.8 billion. After this IPO, the company targets a valuation of $5 billion.

Nykaa is only the startup, which is expecting a profit from IPO launching.

Star Health and Allied Insurance Co. Ltd

Star Health and Allied Insurance Company is a health insurance company which is located in Chennai. The company is known for providing services in health, travel insurance, and personal accident.

On 21 July 2021, Star Health and Allied Insurance filed DRHP with SEBI in regards to IPO launching.

About Star Health and Allied Insurance

Currently, Star health occupies a market share of 15.8% in the private insurance sector.

The company has filed a DRHP with the regulator SEBI to launch an IPO of Rs 3000 Crore.

The public issue comprises a fresh issue equity share of Rs 2000 Crore and an Offer for sale of about Rs 6 Crore equity shares.

The objective of IPO is to maintain solvency level and expand its capital base.

CMS Info Systems

CMS info systems are India’s one of the leading cash management payment collusion companies. It offers its customers a wide range of cash management and managed service solutions, including ATM network management and managed services. This includes ATM network management, retail management and more.

The company is founded by the Blackstone Group, in partnership with Mr Rajiv Kaul - Ex CEO of Microsoft India.

About CMS IPO

This year, CMS has filed DRHP with SEBI to launch its IPO of Rs 2000 Crore.

Here, the public issue consists of an OFS or offer for sale only.

MobiKwik

Mobikwik is an online recharge and bill payment company in India. It is a fintech company that is one of the largest Buy Now Pay Later players in India.

MobiKwik was founded in 2009, by Bipin Preet Singh and Upasana Taku with an initiative of providing mobile wallets to make digital payment convenient for users.

About MobiKwik IPO

This year, MobiKwik has filed DRHP to go public with an IPO of Rs 1900 Crore.

The public issue comprises a primary share sale of Rs 1500 Crore and the rest will be an OFS.

The company has reserved 4.5 million or 7% of its equity for its employees.

MobiKwik has plans to touch the $1 billion valuations with the IPO

Arohan Financial Services

Arohan Financial Service is a leading NBFC that came with an initiative to provide loans for financially penetrated low-income states of India. Arohan provides income-generating loans and other financial services to customers who have limited or no access to financial services.

About Arohan Financial Services IPO

Arohan Financial Services has recently filed DRHP with SEBI this year. It is planning to go public with an IPO of around Rs 1800 Crore.

The public issue comprises an OFS of 27,055,893 shares and fresh issue equity shares of Rs 850 Crore.

To Apply for IPO visit https://ipo.swastika.co.in/

You often come across the news that the value of the rupee is appreciating or depreciating against the dollar.

• Have you ever tried to find out the root cause of it?
• Why do we always measure the rupee in reference to the dollar?

The answer is because of the exchange rate. The exchange rate tells us that the worth of one currency in terms of another currency.

For example: if we buy 1$ = 73.81 Indian rupees, means the exchange rate of the two currencies would be $ 1 =73.81 Indian rupees.

The exchange rates are of two types: Fixed Exchange Rate and Floating Exchange Rate.

The fixed exchange rate is the rate that doesn’t fluctuate due to the government’s interference.

In the case of floating exchange rate, it keeps on changing such as stock market. here, the government intervention is almost null.

Here, the question arises: which type of exchange rate does India have?

In India, there is a managed floating rate exchange system where the Indian government interferes only if the exchange rates go beyond the boundaries set by the country.

This can be done by increasing or decreasing the money supply as the situation demands.

Now, let’s discuss the common terminology used: Rupee Appreciation and Rupee Depreciation.

Rupee Appreciation means the currency i.e. Rupee is gaining strength and its value is growing with respect to the dollar.

When the value of the Rupee is depreciating, that means the value of the currency is going down and its value is decreasing with respect to the dollar.

Let’s understand it with an example:

Suppose, the current exchange rate is $1= Rs  73.81. After few weeks, let’s say after 11 months, you will notice the changes happen in the rupee.

Case 1:

The exchange rate is $1= Rs 70. This clearly indicates the value of the Rupee has gotten stronger and you are required to pay less amount for a dollar.

Case 2:

Suppose the exchange rate is $1 = Rs 75. This shows that the value of the Rupee has gone down and you end up paying more amount for a dollar.

The import-export business; pharma and IT sector are susceptible to changes in the forex rate and have an abundance of stake in the Indian stock market.

Why Does the Rupee Appreciate or Depreciate?

Appreciation or depreciation of a rupee heavily depends on the change in the demand and supply for both currencies. If the demand for the Rupee grows up, the Rupee appreciates; if the demand for the Rupee goes down; it depreciates.

Now, the question arises: what are factors affects a currency?

Interest Rate

A demand for a currency heavily depends on the interest rate differential between the two countries.

A country like India where the interest rate is around 7-8% shows a great capital inflow as investors get much better returns than what they get in the US (as the inflation rate in the US is 2-3% ).

This gives rise to rupee appreciation.

Inflation Rate

The demand for a country’s goods and services would be more if the inflation rate is lower in that country compared to other countries. Higher demand for goods and services means higher demand for that currency which results in the appreciation of that currency.

Import-Export

If a country exports more than its imports from other countries, that means the demand for that currency is more and hence the currency gains wide appreciation against other currencies.

Trading in Currencies in the Forex Market

Rupee’s appreciation or depreciation also depends on the exchange rate fluctuates every minute due to the speculative currency trading in the market.

Impact of Rupee Appreciation and Depreciation

When the Rupee Appreciates

Needless to say, the appreciation of the Rupee against other currencies will definitely uplift the economy. However, it can put a downturn in the stock market.  Let’s understand it with a suitable example:

When the Rupee Appreciates, the markets that mostly get affected by the appreciation are IT and exports. When the value of the Rupee grows higher against the dollar, IT sectors are mostly affected as most of their revenue is generated by exports.

This is because the appreciation of the Rupee makes exports costlier while the domestic exporters face losses as they end up earning less Rupee when exchanging the dollars.

Hence, the companies who are majorly into exports (IT, pharma, petroleum products and jewellery) will get affected more. This may heavily affect their share prices to a greater extent.

When the Rupee Depreciates

When the Rupee depreciates, companies that imports commodities such as oil and gas, food, beverages suffer the most. This can happen only as the value of the Rupee goes down against the US dollars and imports becomes much expensive.

Hence, when the value of the Rupee is depreciating, it mainly affects the company that imports raw materials, foreign borrowings etc.

Besides, the company that majorly relies on exports will benefit the most from Rupee depreciation. Therefore, stocks of IT and pharma will mark a bullish trend.

It is essential to know that the depreciation can affect the market sentients a lot as it causes a decline in foreign investment. When the value of the Rupee starts to decrease, foreign investors pull out their investments, which may put an adverse effect on the stock market.

Conclusion

Indian IT sector heavily depends on foreign clients. Our 70% revenue comes from the IT sector. Thus, when an IT company receives a project from a foreign client, a contract is signed where the cost of the project is pre-decided. The contracts with the US clients are fully quoted in terms of dollars. Hence, the fluctuation in the exchange rates makes a huge difference in the performance of a company.